UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, DC 20549

                                      FORM 10-K


  X         ANNUAL  REPORT  PURSUANT  TO  SECTION 13 OR 15(d) OF THE SECURITIES
            EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 or

            TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
            EXCHANGE ACT OF 1934

                           Commission file number 0-20882

                           STANDARD MANAGEMENT CORPORATION
               (Exact name of registrant as specified in its charter)

                          Indiana                           35-1773567
             (State or other jurisdiction of             (I.R.S. employer
              incorporation or organization)            identification no.)

    9100 Keystone Crossing, Indianapolis, Indiana 46240   (317) 574-6200
         (Address of principal executive offices)           (Telephone)

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g)  of  the  Act: Common Stock, No
Par Value

Indicate  by  check  mark  whether  the registrant: (1) has filed  all  reports
required to be filed by Section 13 or  15(d)  of the Securities Exchange Act of
1934  during  the  preceding 12 months (or for such  shorter  period  that  the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.                          Yes        X
No

Indicate  by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation  S-K  is  not contained herein, and will not be contained, to the
best of registrant's knowledge,  in  definitive proxy or information statements
incorporated by reference in Part III  of  this  Form  10-K or any amendment to
this Form 10-K. [  ]

The  aggregate market value of the voting stock held by non-affiliates  of  the
Registrant,  based upon the closing sale price of the Common Stock on March 13,
1998 as reported  on  The Nasdaq Stock Market, was approximately $41.5 million.
Shares of Common Stock  held by each executive officer and director and by each
person who owns 5% or more  the  outstanding Common Stock have been excluded in
that  such  persons  may be deemed to  be  affiliates.  This  determination  of
affiliate  status is not  necessarily  a  conclusive  determination  for  other
purposes.

As of March  13,  1998,  Registrant  had outstanding 7,094,417 shares of Common
Stock.

Documents Incorporated by Reference:
Portions of the Registrant's definitive  Proxy Statement for the Annual Meeting
of Stockholders are incorporated by reference into Part III of this Form 10-K.




<PAGE>

                                       PART I


      AS USED HEREIN, UNLESS THE CONTEXT OTHERWISE  CLEARLY REQUIRES, "SMC", OR
THE "COMPANY" REFERS TO STANDARD MANAGEMENT CORPORATION  AND  ITS  CONSOLIDATED
SUBSIDIARIES   AND   "STANDARD   MANAGEMENT"   REFERS  TO  STANDARD  MANAGEMENT
CORPORATION  ON  AN UNCONSOLIDATED BASIS. ALL FINANCIAL  INFORMATION  CONTAINED
HEREIN IS PRESENTED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
("GAAP") UNLESS OTHERWISE SPECIFIED.

ITEM 1. BUSINESS OF SMC

INTRODUCTION

      SMC is an international financial services holding company which directly
and through its subsidiaries  acquires  and manages in force life insurance and
annuity  business  and  issues  and  distributes  life  insurance  and  annuity
products.  SMC offers unit-linked assurance  products through its international
subsidiaries.   SMC's  active  subsidiaries  at  December   31,  1997  include:
(i)  Standard  Life  Insurance  Company  of Indiana ("Standard Life")  and  its
subsidiary,  Dixie National Life Insurance  Company  ("Dixie  National  Life"),
(ii)   Standard    Management    International   S.A.   ("Standard   Management
International") and its subsidiaries,  Premier Life (Luxembourg) S.A. ("Premier
Life (Luxembourg)") and Premier Life (Bermuda)  Ltd. ("Premier Life (Bermuda)")
and (iii) Standard Marketing Corporation ("Standard Marketing").

      Standard  Life, SMC's principal insurance subsidiary,  was  organized  in
1934 as an Indiana-domiciled life insurer. It is licensed to write new business
or service existing  business in the District of Columbia and all states except
New  York  and New Jersey.  Standard  Life  offers  flexible  premium  deferred
annuities ("FPDAs")  and whole and universal life insurance. Standard Life also
generates cash flow and  income  from  closed blocks of in force life insurance
and  annuities. At December 31, 1997, Standard  Life's  statutory  assets  were
$367,121,000  and  the  aggregate  of  its statutory capital and surplus, asset
valuation  reserve  ("AVR")  and  interest  maintenance  reserve  ("IMR")  (its
"adjusted statutory capital") was $37,634,000.  The  ratio  of  Standard Life's
adjusted statutory capital to its total statutory assets was 10.3%  at December
31, 1997. Standard Life has a rating of "B+" ("Very Good, Secure") by A.M. Best
Company, Inc. ("A.M. Best"), a rating agency.

      Standard  Management  International is a holding company organized  under
Luxembourg law with its registered  office in Luxembourg. At December 31, 1997,
Standard Management International and  its  subsidiaries  had  $160,516,000  in
assets  with  policies  in  force  in  over  80  countries. The majority of its
business  is  unit-linked  assurance  products  with a  range  of  policyholder
directed investment choices coupled with a small  death  benefit,  sold through
its  subsidiaries:  Premier  Life  (Luxembourg) and Premier Life (Bermuda).  At
December 31, 1997, Premier Life (Luxembourg)  had statutory capital and surplus
of $7,288,000 and its minimum capital and surplus  was  $2,915,000  and Premier
Life (Bermuda) had statutory capital and surplus of $1,350,000 and its  minimum
capital and surplus was $250,000.

      Standard  Life  owns  99.4% of Dixie National Life. At December 31, 1997,
Dixie National Life's statutory assets were $35,240,000, the adjusted statutory
capital was $3,865,000 and the  ratio  of its adjusted statutory capital to its
statutory assets was 11.0%. Dixie National  Life has a rating of B ("Adequate")
by A.M. Best. Dixie National Life markets a variety  of life insurance products
throughout the Mid-South offering primarily "burial expense" policies.

      Standard  Marketing  is  a wholesale distributor of  life  insurance  and
annuity  products.  Through  its  network   of   managing  general  agents  and
independent agents, Standard Marketing distributes  life  insurance and annuity
products  for  Standard  Life,  Dixie National Life and Savers  Life  Insurance
Company and for a select group of  unaffiliated  insurance  companies. Standard
Marketing earns override commission income from the sale of these products.

      On  November 8, 1996, Standard Life acquired through merger  Shelby  Life
Insurance Company  ("Shelby  Life")  from  Delta  Life  and Annuity Corporation
("DLAC"), a life insurance company located in Memphis, Tennessee  (the  "Shelby
Merger").   The   purchase   price  was  approximately  $14,650,000,  including
$13,000,000 in cash, 250,000 shares  of  restricted  Common  Stock  (valued  at
$1,250,000) and acquisition costs of $400,000.  Financing for the Shelby Merger
was  provided  by  senior  debt  of  $10,000,000 and $4,000,000 in subordinated
convertible debt. SMC's intent at the  time  it  purchased  Shelby  Life was to
cease  writing new business as the new business premium volume did not  justify
the costs  of  marketing  support,  and  to  continue  to earn profits from the
existing business. Consistent with that intent, Shelby Life  ceased writing new
business effective November 1, 1996, thus eliminating marketing and sales costs
and  thereby reducing statutory surplus strain. Statutory accounting  practices
require   that  acquisition  costs  associated  with  new  business  (primarily
commissions  and  policy  issue  costs)  be  fully expensed in the year the new
business is written. Surplus strain is created  when acquisition costs incurred
in connection with new business reduces statutory  surplus.  Many states impose
minimum levels of surplus as a condition to writing new business. See "Business
of SMC--Regulation."

<PAGE>
      The  acquisition  of  Shelby  Life  was accounted for using the  purchase
method of accounting and SMC's consolidated  financial  statements  include the
results   of  Shelby  Life  from  November  1,  1996,  the  effective  date  of
acquisition.  Under  purchase  accounting,  Standard  Life  allocated the total
purchase price of Shelby Life to the assets and liabilities acquired,  based on
a  determination  of  their  fair values and recorded the excess of acquisition
cost over net assets acquired  as  goodwill,  which  will  be  amortized  on  a
straight-line basis over 20 years.

      On  March  18,  1996,  Standard  Life  completed  the sale of a duplicate
charter  associated  with  First International Life Insurance  Company  ("First
International") to The Guardian Insurance and Annuity Company, Inc. ("GIAC"), a
subsidiary of The Guardian Group, New York, NY. Standard Life received proceeds
of approximately $10,393,000, including $1,500,000 for the charter and licenses
associated with First International.  Standard  Life realized a net pretax gain
of $1,042,000 and a tax benefit of $1,420,000 on  this sale, or $2,462,000.  In
addition,  First  International, Standard Life and GIAC  have  entered  into  a
series of agreements  that  include  provisions for Standard Life to administer
First International policies in force  at  the  date  of sale, and for Standard
Life to continue to receive the profit stream from certain  First International
policies in force at the date of such sale. See "Business of SMC--Reinsurance."

      SMC  decided  in  February  1996  to terminate the reinsurance  agreement
between Standard Reinsurance of North America Ltd. ("Standard Reinsurance") and
Salamandra Joint-Stock Insurance Company  in Ukraine ("Salamandra"), and not to
renew  the Barbados license of Standard Reinsurance  due  to  an  insignificant
amount of  reinsurance  premium  volume (less than $100,000).  This resulted in
the termination of Standard Reinsurance  operations  and the write-off of SMC's
investment in Standard Reinsurance and certain intangible  assets  of  Standard
Reinsurance amounting to $156,000.

      The  combined  effect  of  the  gain  on  sale of First International and
related  contracts,  and the Standard Reinsurance write-offs,  was  a  gain  on
disposal of subsidiaries  of  $886,000 and a tax benefit of $1,420,000, for net
income effect of $2,305,836 for the year ended December 31, 1996.

      In June 1988, Standard Life  ceded a block of business to National Mutual
Life Insurance Company ("National Mutual").  Effective  May  31, 1996, Standard
Life terminated by recapture the reinsurance agreement with National Mutual. As
a  result  of  this recapture, Standard Life received assets of $4,826,000  and
liabilities of $4,826,000, primarily ordinary life policies. In connection with
this transaction,  Standard  Life agreed to pay National Mutual a recapture fee
of $1,200,000, and Standard Life  collected  administration  fees  of  $375,000
related  to  services  provided  in  prior  years  that  had  not been recorded
previously  due  to the uncertainty as to its collection. The net  proceeds  of
$825,000 were recorded as the present value of the future profits on this block
of business, which is being amortized in proportion to the emergence of profits
over 20 years. This  premium  income  and corresponding increase in reserves of
$4,234,000,  recorded  in connection with  the  recapture  of  the  reinsurance
agreement with National Mutual will not recur in the future.

      On March 12, 1998,  SMC  acquired  Savers Life Insurance Company ("Savers
Life"), with Savers Life surviving as a wholly-owned  subsidiary  of SMC.  Each
of  the 1,779,908 shares of Savers Life Common Stock outstanding was  converted
into  1.2  shares  of  SMC Common Stock plus $1.50.  Each holder of Savers Life
Common Stock could elect  to  receive the $1.50 per share portion of the merger
consideration in the form of additional shares of SMC Common Stock.  SMC issued
approximately 2.2 million shares  with  a  value of approximately $14.9 million
and paid $2.1 million in cash (excluding acquisition  costs)  to acquire Savers
Life.   SMC  increased  the  Amended  and  Restated  Revolving  Line of  Credit
Agreement  with  a  bank  (the  "Amended  Credit  Agreement")  to an amount  of
$20,000,000  to  finance  the  acquisition of Savers Life.  See "Liquidity  and
Capital Resources".

      Savers  Life  underwrites,  markets   and   distributes  annuities,  life
insurance,  and  Medicare supplement health insurance  through  a  sales  force
consisting of approximately  4,000  independent brokers and is licensed to sell
products in North Carolina, South Carolina,  Virginia and Florida.  Savers Life
had  total  assets  of  $72,186,000  at  December  31,  1997  and  revenues  of
$43,047,000 for the year ended December 31, 1997.

ACQUISITION STRATEGY

      A  principal  component  of  SMC's  strategy  is  to   grow  through  the
acquisition of life insurance companies and blocks of in force  life  insurance
and annuities. SMC regularly investigates acquisition opportunities in the life
insurance  industry  that  complement or are otherwise strategically consistent
with its existing business.  Any  decision to acquire a block of business or an
insurance company will depend on a favorable evaluation of various factors. SMC
believes  that availability of blocks  of  business  in  the  marketplace  will
continue in  response  to ongoing industry consolidation and risk-based capital
requirements  as well as  other  regulatory  and  rating  agency  concerns.  In
addition, SMC plans  to  market annuity and life insurance products directly as
it has done in the past. SMC  currently  has no plans or commitments to acquire
any specific insurance business or other material  assets  besides Savers Life.
No  assurance  can  be  given  that SMC will be successful in consummating  any
future acquisition.

      SMC has the information systems and administrative capabilities necessary
to  add  additional  blocks of business  without  a  proportional  increase  in
operating expenses. In  addition,  SMC  has developed management techniques for
reducing or eliminating the expenses of the  companies  it acquires through the
consolidation  of  their  operations  with  those  of SMC, and  for  increasing
investment  yields.  Such  techniques  include  reduction   or  elimination  of
overhead, including the acquired company's management, staff  and  home office,
elimination  of marketing expenses and, where appropriate, the substitution  of
Standard Marketing's  network  for  the acquired company's current distribution
system, and the conversion of the acquired company's data processing operations
to SMC's system.

      SMC may effect its acquisitions  through  the  purchase  or  exchange  of
shares,  if the acquisition candidate is an insurance company, or an assumption
reinsurance  transaction,  if  the  proposed  acquisition  concerns  a block of
business.  SMC's  acquisitions  may be subject to certain regulatory approvals,
policyholder consents and stockholder approval, when applicable.

MARKETING

      DOMESTIC MARKETING.  Standard  Marketing  was  organized  as  a wholesale
distribution  system  to  provide  a  lower cost alternative to the traditional
captive  agency  force.  Standard  Marketing   has  established  a  network  of
approximately 20,000 independent general agents,  including  Savers Life. These
agents distribute a full line of life insurance and annuity products  issued by
Standard  Life,  Dixie  National  Life  and  Savers  Life and a select group of
unaffiliated insurance carriers that Standard Marketing  represents. As part of
its normal recruiting, Standard Marketing selectively recruits  new agents from
those formerly associated with companies acquired by SMC.

      Crediting  rates,  commissions,  the  perceived  quality  of the  issuer,
product  features and services are generally the principal factors  influencing
an agent's  willingness  and  ability  to  sell  particular  life  and  annuity
products.  SMC  believes  that  both agents and policy owners value the service
provided  by SMC. Standard Marketing  assists  its  agents  in  submitting  and
processing  policy  applications  and  helps  ensure  that issuing insurers pay
commissions on a timely basis. Standard Life issues an  annuity  and  pays  the
Standard  Marketing agent's commission within 24 hours subsequent to receipt of
policyholder's  deposit.   Standard  Marketing  also  assists  its  agents with
licensing  applications  and  provides  other  administrative support. Standard
Marketing provides marketing support for its agents,  including  sales seminars
and  other continuing education programs, point of sale materials,  illustrated
proposal  services,  toll-free  access for sales inquiries and access to senior
executives.  In addition, Standard  Marketing  can  introduce  agents  to  lead
services who will  provide  such  services  at  discounted  rates that Standard
Marketing has negotiated.

      Standard  Marketing  agents  offer  a  full portfolio of life  insurance,
annuity and health products that Standard Marketing  has  selected on the basis
of  their competitive position and likely consumer acceptance.  Such  portfolio
includes  FPDAs,  whole  and  universal  life  insurance  and  critical illness
products  issued  by Standard Life and Dixie National Life, for which  Standard
Marketing is the exclusive  distributor,  and life insurance products issued by
selected unaffiliated insurers.  Standard Marketing receives, directly from the
insurance  companies  it  serves,  primarily  affiliated  insurance  companies,
override  commissions on sales by its agents, which  are  in  addition  to  the
commissions  paid to Standard Marketing's independent agents.  The availability
of override commissions provides an economic incentive to Standard Marketing to
recruit agents  who  produce business.  Standard Marketing's relationships with
these companies are non-exclusive  and  are  terminable by either party upon 30
days notice.  Standard Marketing regularly evaluates  the  products  its agents
offer to determine whether products or insurers should be added to, or  deleted
from,  the  Standard  Marketing  portfolio.   SMC  does  not  insure any of the
policies  and  contracts  Standard  Marketing's  agents  sell  for unaffiliated
insurers.

      Each  general  agent operates his own agency and is responsible  for  all
expenses of the agency.   The  general  agents  are compensated directly by the
issuing  insurance companies, which perform all policy  issuance,  underwriting
and accounting  functions.  SMC is not dependent on any one agent or agency for
any substantial amount of its  business.   No  single  agent accounted for more
than 4% of Standard Life's annual sales in 1997, and the  top twenty individual
agents accounted for approximately 37% of Standard Life's volume  in  1997.  At
December 31, 1997, approximately 25% of Standard Marketing's independent agents
were located in Indiana, Florida, Ohio, Georgia, California and Illinois,  with
the  balance distributed across the country.  SMC is attempting to increase the
number  and  geographic  diversity  of  its  agents. In 1997, SMC began writing
significant amounts of business in Colorado and  the  Mid-South due to Standard
Marketing's expansion efforts.

      SMC  does  not  have  exclusive  agency agreements with  its  agents  and
management believes most of these agents sell products similar to those sold by
SMC for other insurance companies.  This  could  result  in  a sales decline if
SMC's products were to become relatively less competitive. Standard Life's 1997
FPDA sales increased partially due to an aggressive marketing campaign targeted
to high volume sales agents and marketing companies.  Also contributing  to the
increase   in  premiums  was  the  continued  development  of  Standard  Life's
distribution  system  through  marketing  support from Standard Marketing along
with an aggressive program aimed at retention  of  key  producers and expanding
geographical concentration into the Mid-South and California.

      SAVERS LIFE MARKETING.  Savers Life initially sold  only annuity products
through  its  affiliations with a network of North Carolina-based  Savings  and
Loan  institutions.    In  the  late  1980s,  the  Savings  and  Loan  industry
experienced financial crises  which  led  to  a large number of mergers in that
industry.   Savers  Life's  distribution network among  the  Savings  and  Loan
institutions was threatened by  this merger boom, so Savers Life expanded its
marketing efforts, gradually building  up  a  network  of  independent brokers,
while still continuing to market through certain North Carolina and South 
Carolina Savings and Loan institutions. Savers Life currently has approximately 
4,000 active brokers.   Savers  Life is not  dependent  on  any  one broker or 
agency for any substantial amount of its business.  Savers Life employs three 
Regional Managers, who are responsible for personally initiating and  
maintaining  direct communications with every broker appointed  by  Savers  
Life.  The Regional Managers  are  responsible  for  the recruitment  and  
training   of   all   new   brokers.   Each  broker  operates independently 
of Savers Life and is responsible for all of his or her expenses.

      INTERNATIONAL  MARKETING.   The  subsidiaries   of   Standard  Management
International,  Premier Life (Luxembourg) and Premier Life (Bermuda),  produced
aggregate new premium  deposits  of  approximately $22,000,000, $17,000,000 and
$32,000,000 during 1997, 1996 and 1995,  respectively.  The increase in 1997 is
due to renewed marketing efforts in certain European countries, particularly in
Sweden  and  Belgium.   The decrease in 1996 is primarily due  to  an  internal
reorganization of its operational facility as well as a renewed focus on target
markets which succeeded in  1997. The countries within the European Union
have been the main contributor to these  sales. Although SMC expects this to be
the case in the future, it plans to increase  marketing  efforts in other parts
of the world as well.

      Although Standard Management International anticipates  as  part  of  its
long  term  plan  to grow significantly through internal sales, acquisitions of
other European insurance  companies  may  be  considered.  It  has designed and
launched new single and regular premium products in recent years. It is also in
discussions  with  a number of companies to form alliances to produce  tailored
products for their markets.   It  is  currently the intention that Premier Life
(Luxembourg) will write business within  the  European  Union  and Premier Life
(Bermuda) will write international business elsewhere in the world.  The market
for Standard Management International's products is considered to be medium  to
high net worth individuals who typically have in excess of $75,000 to invest in
a single premium policy and medium to high earners who have in excess of $3,000
per annum to invest in a regular premium savings product. The above individuals
would  come  from  a  combination  of  expatriates, residents of European Union
countries and from other targeted areas.  The expatriate and European insurance
markets are well established and highly competitive  with  a  large  number  of
domestic and international groups operating in, or going into, the same markets
as Standard Management International.

      Standard   Management   International's   products  are  distributed  via
independent  agents  who  have  established  connections  with  these  targeted
individuals. Standard Management International  is  striving to develop into an
entrepreneurial intermediary oriented organization committed  to  building long
term  relationships  with high quality distributors, thereby creating  a  niche
position. Standard Management  International  places the same emphasis as SMC's
U.S.  insurance  companies  on a high level of service  to  intermediaries  and
policyholders while striving to achieve low overhead costs.

PRODUCTS

      SMC   primarily   markets   FPDAs,   whole   life   and   universal   and
interest-sensitive  life  insurance policies  and  unit-linked  policies.   The
following table sets forth the amounts and percentages of net premiums received
by SMC from currently marketed  products for the years ended December 31, 1997,
1996 and 1995, respectively (in thousands).   Because  GAAP  generally excludes
annuity  and  unit-linked  products  deposits, and premiums from universal  and
interest-sensitive life insurance from  premium income, and thus does not fully
reflect SMC's cash flow from new business, the premium information contained in
the  following table is reported using statutory  accounting  principles  which
includes  deposits  on  annuities  and  unit-linked policies, and premiums from
universal and interest-sensitive life insurance.

<TABLE>
<CAPTION>
                                                                     Year Ended December 31,
<S>                                  <C>                  <C>          <C>                  <C>         <C>                <C>
                                        1997            1996              1995
                                    Amount               %             Amount              %            Amount             %
Currently marketed products:
    FPDAs                            $41,066              55.5         $37,322              58.7        $12,417            25.8
   Universal and                       5,836               7.9           5,384               8.5          2,044             4.2
interest-sensitive life
   Single premium immediate            2,704               3.7           1,423               2.2          1,257             2.6
annuities
   Whole life                          2,349               3.2           2,546               4.0            668             1.4
   Unit-linked products               21,954              29.7          16,902              26.6         31,793            66.0
                                     $73,909              100.0         63,577             100.0         48,179           100.0
</TABLE>


      FPDA sales increased in 1997 primarily  due  to  the  introduction of new
products and an increase in the agency base achieved through the recruitment of
high volume agents and larger managing general agencies and continued expansion
of  geographical  concentration  into  such  areas as California.   FPDA  sales
increased  in 1996 partially due to Standard Life  decreasing  the  quota-share
portion of business  ceded pursuant to a reinsurance agreement, under which 70%
of a portion of Standard  Life's  annuity business pursuant to the terms of the
agreement produced after December 31,  1994  was  ceded, to 50% at September 1,
1995,  which  was  further  decreased  to 25% effective  April  1,  1996.  This
reduction was possible since the surplus  strain  experienced  by Standard Life
was not as great as originally anticipated as a result of lower  than  expected
sales  in  1995  and  the  additional  surplus resulting from the sale of First
International. Premium deposits ceded pursuant  to  this  reinsurance agreement
reduced net premium by $8,707,000, $8,907,000 and $20,090,000  for  1997,  1996
and 1995, respectively.

      The increase in universal and interest-sensitive life products in 1996 is
primarily  due  to  the  increase in interest-sensitive life products issued by
Dixie National Life, which  is  included  in results after October 2, 1995, the
effective date of the acquisition.

      The increase in deposits from unit linked  products  in 1997 is primarily
due   to   the   renewed  marketing  efforts  in  certain  European  countries,
particularly in Sweden and Belgium.


      The following table shows certain information for SMC as of the dates set
forth below (in thousands):


<TABLE>
<CAPTION>
                                                                             At December 31,
<S>                                         <C>                           <C>                  <C>      <C>
                                            1997                          1996                          1995
Number of annuity contracts in force        14,013                        13,221{ (3)}                  8,637
Interest-sensitive annuity and other
financial                                   $350,607                      $333,633{ (3)}                $212,500
    product reserves, net of reinsurance                                             
ceded
Number of life policies in force            68,571                                 76,219{ (4)}         63,038
Life insurance in force, net of reinsurance $      1,178,171{ (1)}       $      1,367,675{ (4)}         $826,296
ceded
Number of separate contracts
   (primarily unit-linked products)         2,329                         2,484                         2,951
Total liabilities related to separate
accounts                                     $          148,064           $128,546                      $122,705
   (primarily unit-linked products)                         {(2)}
</TABLE>

(1)   The decrease  in  life  insurance  in force is due to the termination and
      recapture of a reinsurance agreement  effective  January  1,  1997.   See
      "Business of SMC -- Reinsurance".

(2)   The  liabilities  related  to  separate accounts increased in 1997 due to
      increased new premium deposits and  higher  investment  returns earned by
      the   policyholder  on  the  separate  accounts  due  to  improved   fund
      performance.

(3)   The number  of  annuity contracts in force and interest-sensitive annuity
      and other financial  product  reserves increased in 1996 primarily due to
      the increase in FPDA sales in 1996 and the Shelby merger.

(4)   The number of life policies and  insurance in force increased in 1996, as
      a result of the Shelby merger. Shelby  Life  had 16,603 life policies and
      $617,688,000 insurance in force as of November 1, 1996.

CURRENTLY MARKETED PRODUCTS

      The individual annuity business is a growing segment  of  the savings and
retirement industry, which increased in sales from $1 billion in  1970  to more
than $54 billion in 1990. The individual annuity market, which is one of  SMC's
primary  target,  comprises  42% of those sales. As the 76 million baby boomers
born  from 1946 through 1964 grow  older,  demand  for  insurance  products  is
expected  to  grow. SMC believes that those seeking adequate retirement incomes
will depend less  and  less  on Social Security and their employers' retirement
programs  and  more and more upon  their  own  financial  resources.  Annuities
currently enjoy  an  advantage over certain other saving mechanisms because the
annuity buyer receives  a  tax-deferred  accrual  of interest on his investment
during the accumulation period.

      Standard Life, Dixie National Life and Standard  Management International
all  currently  issue new policies. Standard Life emphasizes  the  issuance  of
FPDAs. Dixie National  Life  primarily  sells  "burial  expense" life insurance
policies. Standard Management International markets unit-linked  products. Over
31%  of  all  net  premiums  and  deposits  collected  in 1997 by SMC from  its
currently  marketed  products, arise from the sale of unit-linked  products  by
Standard Management International.  The  balance is represented by the sales of
whole  life and universal and interest-sensitive  life  insurance  products  by
Standard  Life and Dixie National Life and Standard Life's FPDAs. The portfolio
of products  is  continuously  reviewed by management, and product features and
terms are adjusted in response to  market  conditions  in  an  effort to remain
competitive.


      Standard  Management  International's  products  are  sold  primarily  in
Western Europe.  SMC's gross sales percentages by U.S. geographical  region are
summarized as follows:

      STATE                          1997        1996        1995


      Indiana                         21%         18%         24%
      California                      11          11           3
      Ohio                            10          16          22
      Florida                         10          14          11
      Texas                            4           4           2
      Louisiana                        4           2           2
      Virginia                         4           2          --
      Colorado                         4           1          --
      Michigan                         2           6           4
      All other states {(1)}          30          26          32
      Total                          100%        100%        100%

(1)   No other state had gross sales greater than 4%.

STANDARD LIFE PRODUCTS

      FLEXIBLE  PREMIUM  DEFERRED  ANNUITIES.   FPDAs  provide  for  an initial
deposit  by an annuitant and optional additional deposits, the time and  amount
of which are  at  the  discretion  of  the annuitant. Standard Life credits the
account  of the annuitant with earnings at  interest  rates  that  are  revised
periodically  by  Standard Life until the maturity date. This accumulated value
is tax deferred. Revisions  to  interest  rates  on  FPDAs are restricted by an
initial crediting rate guaranteed for a specific period  of  time and a minimum
crediting rate guaranteed for the term of the FPDA. At maturity,  the annuitant
can  elect  a  lump  sum  cash  payment of the accumulated value or one of  the
various  payout options available.  Standard  Life's  FPDAs  also  provide  for
penalty-free  partial  withdrawals  of  up  to 10% annually of the accumulation
value  after  the  annuitant has held the FPDA for  more  than  12  months.  In
addition, the annuitant  may surrender the FPDA at any time before the maturity
date and receive the accumulated  value,  less  any  surrender  charge  then in
effect for that contract. To protect holders of FPDAs from a sharp reduction in
the  credited  interest rate after a FPDA is issued, Standard Life permits  the
FPDA holder of certain  annuities  to  surrender the annuity during a specified
period without incurring a surrender charge  if  the  renewal crediting rate is
below  a  stated level. This stated level of interest is  referred  to  as  the
"bail-out rate"  and  is typically below the original crediting rate, but above
the minimum guaranteed crediting rate.

      As of January 1,  1998,  the crediting rates available on Standard Life's
currently marketed FPDAs ranged  from  6.8%  to  12%, with new issues having an
interest rate with a one year guarantee period. After  the  initial period, the
crediting rate may be changed periodically, subject to minimum guaranteed rates
from  3%  to  4%.  As  of January 1, 1998, interest crediting rates  after  the
initial guarantee period  ranged  from  5%  to  6.6%.  The  surrender charge is
initially  13%  or  15%  of  the  contract  value depending on the product  and
decreases over the applicable penalty period of nine, ten or thirteen years. As
of January 1, 1998, the bail out rate for Standard  Life's FPDAs was 4.5%; most
currently marketed products carry a bail out rate for  only the first two years
after  issue.  As  of  December  31,  1997, Standard Life had  8,855  currently
marketed FPDA contracts in force.

      WHOLE   LIFE   INSURANCE.    Standard   Life    offers   two   types   of
non-participating whole life policies: one in face amounts up to $10,000 (which
is only issued upon conversion of other policies) and the other in face amounts
up  to  $50,000. Whole life insurance products involve fixed  premium  payments
made over  time,  with  the stated death benefit paid in full upon the death of
the insured. The whole life  policy  combines  the  death benefit with a forced
savings  plan.  Premiums remain level over the life of  the  policy,  with  the
policyholder prefunding  during  the early years of coverage when risk of death
is low. Over time, whole life policies  begin  to accrue a cash value which can
be made available to the policyholder net of taxes and withdrawal penalties. As
of  December  31,  1997, Standard Life had 551 currently  marketed  whole  life
policies in force.

      SINGLE PREMIUM  IMMEDIATE  ANNUITIES.   Standard  Life  offers  a  single
premium immediate annuity ("SPIA"), whereby an annuitant purchases an immediate
annuity with a one-time premium deposit at the time of issuance. Standard  Life
begins  a  payout  stream  shortly  after  the  time  of issuance consisting of
principal  value  plus  accumulated  interest  credited to such  annuity.  This
product  credits  interest  based  on  an  investment   portfolio  earned  rate
assumption. As of December 31, 1997, Standard Life had 691  SPIA  contracts  in
force.

      UNIVERSAL  LIFE.   SPULs provide for an initial deposit (flexible premium
universal life ("FPUL") for  periodic  deposits),  credit  interest  to account
values and charge the account values for mortality and administrative costs. As
of  January 1, 1998, the current interest rate on new sales of SPULs was  6.75%
with a guaranteed interest rate of 3.4%. As of December 31, 1997, Standard Life
had 88 and 286 SPUL and FPUL policies in force, respectively.

      CRITICAL  ILLNESS.   During 1997, Standard Life introduced a new critical
illness product which is being offered in the United States for the first time.
A critical illness policy pays  a  100%  lump sum cash payment when the insured
survives 30 days or more after diagnosis of  cancer,  stroke,  or heart attack.
In  addition, the insurer would pay 25% of the benefit amount on  heart  bypass
surgery, Alzheimer's, deafness, or blindness.  Although not intended to replace
existing insurance, this product gives policyholders access to sums of money to
help  them through difficult situations.  Included in the policy is a return of
premium benefit, which would return all paid premiums (without interest) if the
insured  dies  after  10 years, assuming the policy is still in force.  This 14
year-old product has been  extremely successful in South Africa, Australia, the
United Kingdom, and Japan.   In 1993, $15.5 billion of face amount insurance in
critical illness policies was  sold  in  the  United  Kingdom alone.  In Japan,
500,000 policies were sold within the first 10 months of  its  inception,  with
over $6 million in total sales to date.

DIXIE NATIONAL LIFE PRODUCTS

      Life insurance policies sold by Dixie National Life in the final expense,
or  burial,  market  include  fixed  premium  interest  sensitive policies that
provide  for  increasing  death  benefits,  as well as traditional  whole  life
policies. These policies are designed to cover  expenses  such as funeral, last
illness, monument and cemetery lot. The policies provide for  a  death benefit,
generally  not in excess of $10,000, and a level premium payment. The  products
include a cash  value which may be borrowed by the policyholder. Dixie National
Life's  policies  sold   in   other  markets  include  interest  sensitive  and
traditional whole life policies  and  forms  of  term  policies.  The  interest
sensitive  whole  life  policies  have  a  guaranteed interest rate of 5.50% on
products marketed as of January 1, 1998.  The interest sensitive and whole life
policies include cash values which may be borrowed  by  the policyholder. Dixie
National  Life  issues  policies on both a participating and  non-participating
basis.  As of December 31,  1997,  Dixie  National  Life  had  734  and  24,185
individual annuities and life policies in force, respectively.

STANDARD MANAGEMENT INTERNATIONAL PRODUCTS

      UNIT-LINKED POLICIES.  Standard Management International currently writes
unit-linked  life  products,  which  are similar to U.S. produced variable life
products. Separate account assets and  liabilities are maintained primarily for
the exclusive benefits of universal life  contracts and investment contracts of
which the majority represents unit-linked business  where benefits on surrender
and  maturity  are  not  guaranteed.  They generally represent  funds  held  in
accounts to meet specific investment objectives  of  policyholders who bear the
investment risk. Investment income and investment gains  and  losses within the
separate accounts accrue directly to such policyholders. The fees  received  by
Standard  Management  International  for  administrative  and  contract  holder
maintenance  services  performed  for  these  separate accounts are included in
SMC's statement of operations.

      In  the  past, Standard Management International  also  wrote  investment
contracts and universal  life policies and to a lesser extent, traditional life
policies.  The  investment  contracts  are  mainly  short-term  single  premium
endowments or temporary annuities  under  which  fixed benefits are paid to the
policyholder. The terms of these contracts are such  that  SMC  has  relatively
small  morbidity  or  mortality  risk.  The universal life contracts are mainly
regular  premium and single premium endowment.  The  benefits  payable  to  the
policyholders  are  directly  linked  to  the  investment  performance  of  the
underlying assets.

CLOSED BLOCKS

      SMC  also  generates  cash  flow  and income from its closed blocks of in
force life insurance and annuities. Closed  blocks  are blocks of in force life
insurance  and  annuities that are not currently being  marketed  by  SMC.  The
closed block designation  is  for  internal purposes only, it does not have any
legal or regulatory significance and there are no restrictions on the assets or
future profits of closed blocks.  The  premiums  received  on the closed blocks
were primarily from the ordinary and universal life business.  This  decline in
premium  income  is  expected  as  a  result  of  policy lapses, surrenders and
expiries from closed blocks of business.

      ANNUITIES.  SMC's closed blocks of deferred annuities  consist  primarily
of  FPDAs  and  a  small  amount of single premium deferred annuities ("SPDAs")
which, unlike FPDAs, do not  provide for additional deposits.  As of January 1,
1998, these deferred annuities  had crediting rates ranging from 5% to 5.5% and
guaranteed minimum crediting rates  ranging from 3% to 5.5%. The crediting rate
may be changed periodically. The contract owner is permitted to withdraw all or
part of the accumulation value. SMC's closed blocks of annuities include payout
annuities. Payout annuities consist of  those  annuities  the benefits of which
are  being  paid out over a specified time period. Payout annuities  cannot  be
terminated  by  surrender  or  withdrawal.  SMC's  crediting  rates  on  payout
annuities range from 5.5% to 6.5% and cannot be changed.  At December 31, 1997,
SMC had 3,688 annuity contracts in force for closed blocks.

      ORDINARY  LIFE.   The  ordinary  life  policies  included in SMC's closed
blocks are composed primarily of fixed premium, cash value whole life products.
In addition, they include annually renewable term policies as well as five, ten
and fifteen year level premium term policies.  At December  31,  1997,  SMC had
35,937 ordinary life policies in force for closed blocks.

      UNIVERSAL  LIFE.   Certain closed blocks include universal life business.
For this business, SMC credits  deposits  and  interest  to  account values and
charges the account values for mortality and administrative costs.  At December
31,  1997, SMC had 6,368 universal life policies in force for the  Shelby  Life
closed block of business.

      REINSURANCE.   In  connection  with financial reinsurance, Dixie National
Life terminated a reinsurance agreement  with  Crown Life Insurance Company and
received recaptured premium income of $18,186,000  and entered into a financial
reinsurance  agreement  with  Cologne  Life  Reinsurance   Company   and  ceded
$13,091,000 of premium income in 1996.

      The  policies subject to the recapture of the reinsurance agreement  with
National Mutual  were primarily ordinary life policies. See "Business of SMC --
Reinsurance."

SAVERS LIFE PRODUCTS

      Savers Life  issues and markets Medicare supplement health policies, term
and whole life policies, single premium deferred annuities and SPIAs.

      MEDICARE SUPPLEMENT INSURANCE.  Medicare supplement insurance is designed
to help Medicare recipients  with  the  portion  of their medical expenses that
Medicare does not cover.  This product is regulated  by the federal government.
Each insurance company's products are identical in benefits  covered.  Medicare
supplement plans are identified by the letters A through J. Savers  Life  sells
plans  A through G. Each plan has different benefits to the insured as well  as
different  premium  levels.   Medicare supplement plans are available to anyone
who is eligible for Medicare Part B and within the ages of 65 and 85 at date of
issue.  At the time a person initially  becomes  eligible  for  Medicare Part B
("open enrollment period"), Savers Life must offer a Medicare supplement policy
to  that  person regardless of potential health problems of the person.   If  a
person requests  insurance  coverage  after  the open enrollment period, Savers
Life is allowed to underwrite the policy and determine  insurability  based  on
the health of the individual.  Savers Life has a combination of products in its
in-force  block  of Medicare supplement business, including pre-standardization
plans and standardized plans A through G. Premiums on all of these policies can
be increased only  with regulatory approval in the states in which the policies
were written.  With the exception of South Carolina, premium rate increases can
occur no more frequently  than  annually.   South  Carolina allows premium rate
increases semiannually after the first policy anniversary.

      In addition to sales of its own products, Savers Life markets products of
other companies, and for this effort, receives fee income.

      KEYPORT ANNUITIES.  Savers Life sells annuities on behalf of Keyport Life
Insurance  Company  ("Keyport"),  a  Rhode Island-based  seller  of  annuities,
through its broker network.  Savers Life  sells  Keyport fixed annuity products
that,  due to their relatively high rate of interest,  are  very  popular  with
Savers Life's  customer  base.   Savers  Life  remits the premiums collected to
Keyport and is compensated through commission agreements.

      QUALCHOICE  OF  NORTH  CAROLINA  PRODUCT.  Savers  Life  entered  into  a
two-year  marketing  and  administrative  contract  with  QualChoice  of  North
Carolina ("QualChoice") in 1996 whereby Savers  Life is the distribution system
for the small group product offered by QualChoice.   QualChoice  is an HMO in a
twenty-county  area  in  the  northwestern part of North Carolina offering  HMO
insurance coverage to both large  and  small  groups.   Small group coverage is
defined  as  any  group  of  employees  from  one  to  fifty.  Savers  Life  is
compensated  for  this  effort  with  a marketing fee, administrative  fee  and
commission reimbursement for its brokers.

PRODUCT PROFITABILITY

      The profitability of the life insurance  and annuity products depend to a
significant  degree  on the maintenance of profit  margins  between  investment
results from invested  assets  and  interest  credited on insurance and annuity
products. During 1997, such margins continued to be positive as a result of the
increase in investment portfolio yields, which  offsets the effects of sales of
FPDAs in 1997 with higher and more competitive interest rates.

      The long-term profitability of insurance products depends on the accuracy
of  the  actuarial  assumptions  that underlie the pricing  of  such  products.
Actuarial  calculations  for  such  insurance   products,   and   the  ultimate
profitability   of   such   products,   are   based   on  four  major  factors:
(i) persistency, (ii) mortality (iii) return on cash invested  by  the  insurer
during  the life of the policy and (iv) expenses of acquiring and administering
the policies.

      The  average  expected  remaining  life  of Standard Life's ordinary life
business  in  force at December 31, 1997 was 9.0 years.  This  calculation  was
determined based  upon  SMC's  actuarial  models and assumptions as to expected
persistency  and  mortality.  Persistency  is the  extent  to  which  insurance
policies sold are maintained by the insured.  The persistency of life insurance
and annuity products is a critical element of their  profitability.  However, a
surrender charge often applies in the early contract years and declines to zero
over time.

      Policyholders sometimes do not pay premiums, thus causing their  policies
to  lapse.  For  the  years 1997, 1996 and 1995 Standard Life experienced total
policy lapses of 6.5%,  6.3% and 5.1% of total policies in force at December 31
of each year, respectively.  The  American  Council of Life Insurance 1997 Fact
Book reported industry life insurance voluntary  termination  rates  in 1996 of
17.7% for policies in force less than two years, 5.1% for policies in force for
two years or more and 6.8% for all policies in force.

<PAGE>
OPERATIONS

      SMC  emphasizes  a high level of service to agents and policyholders  and
strives  to  achieve  low  overhead   costs.   SMC's  principal  administrative
departments are its financial, policyholder services and management information
services  ("MIS")  departments. The financial department  provides  accounting,
budgeting, tax, investment,  financial  reporting  and  actuarial  services and
establishes cost control systems for SMC. The policyholder services  department
reviews  policy  applications,  issues  and administers policies and authorizes
disbursements related to claims and surrenders. The MIS department oversees and
administers SMC's information processing systems.

      SMC's  administrative departments in  the  United  States  use  a  common
integrated system  that permits SMC to function more efficiently, control costs
and maintain low overhead.  SMC's  MIS  system  serviced  approximately 150,000
active and inactive policies at December 31, 1997. SMC is continually improving
its  MIS systems to provide for continued growth from acquisitions  and  sales.
SMC's  1998  capital  budget  for  systems  improvements is $150,000. Also, SMC
anticipates minimal expenditure to be required  in the update of the MIS system
for the year 2000.

      Standard Management International's administrative and MIS departments in
Luxembourg are an autonomous unit from the systems in the United States. SMC is
in   the   process  of  improving  the  MIS  systems  of  Standard   Management
International and integrating them with the U.S. systems.

INVESTMENTS

      Investment  activities are an integral part of SMC's business; investment
income of SMC's insurance  subsidiaries  is  an  important  part  of  its total
revenues.  Profitability  is  significantly  affected  by spreads between rates
credited  on  insurance  liabilities  and  interest yield on  invested  assets.
Substantially all credited rates on FPDAs may be changed at least annually. For
the year ended December 31, 1997, the weighted  average  interest rate credited
on SMC's interest-sensitive liability portfolio, excluding  liabilities related
to  separate  accounts,  was  approximately 5.58% per annum, and  the  weighted
average net yield of SMC's investment portfolio for the year ended December 31,
1997 was 7.68% for an average interest  spread  of 210 basis points at December
31, 1997, compared to 205 basis points at December 31, 1996. The consistency in
the  average  interest  spread is primarily attributable  to  the  increase  in
investment portfolio yields,  which  offsets  the  effects of sales of FPDAs in
1997 with higher and more competitive interest rates. Increases or decreases in
interest  rates  could increase or decrease the average  interest  rate  spread
between investment yields and interest rates credited on insurance liabilities,
which  in turn could  have  a  beneficial  or  adverse  effect  on  the  future
profitability  of  SMC.  Sales  of  fixed  maturity  securities  that result in
investment  gains  may  also  tend  to  decrease  future average interest  rate
spreads. State insurance laws and regulations prescribe  the types of permitted
investments and limit their concentration in certain classes of investments.

      The  following table shows SMC's pre-tax investment performance  for  the
periods indicated (in thousands):

<TABLE>
<CAPTION>
                                                                          Year Ended December 31,
<S>                                          <C>                           <C>                           <C>
                                             1997                          1996                          1995
Average invested assets{ (1)}                $384,145                      $285,186                      $253,055
Net investment income                        29,516                        20,871                        18,517
Weighted average annual yield{ (2)}          7.68%                         7.32%                         7.32%
Net realized investment gains                $396                          $1,302                        $688
</TABLE>

(1)   Average  invested  assets  are  computed  by  dividing  the  total of the
      amortized cost of invested assets at the beginning of the period plus the
      individual  quarter-end balances by the number of quarterly periods  plus
      one.  The increase in average invested assets in 1997 is primarily due to
      the acquisition of Shelby Life effective November 1, 1997.

(2)   The weighted  average annual yield on SMC's investment portfolio for each
      period is computed  by  dividing  net  investment  income  (exclusive  of
      realized  and unrealized gains and losses) by average invested assets for
      such period.
<PAGE>
      The following  table  shows  the  amortized  cost,  gross unrealized gain
(loss) and estimated fair value of SMC's investment securities all of which are
available for sale (in thousands):

<TABLE>
<CAPTION>
                                                                            December 31, 1997
<S>                                      <C>                      <C>                    <C>                    <C>
                                                                       Gross                  Gross
                                             Amortized            Unrealized Gain          Unrealized                Fair
                                               Cost                                          (Loss)                  Value
Fixed maturity securities:
           United States Treasury
           securities and
             obligations of United       $27,613                  $174                   $(90)                  $27,697
             States government agencies
           Obligations of states and
           political                     3,790                    204                    (26)                   3,968
             subdivisions
           Foreign government securities 30,558                   497                    (3,296)                27,759
           Utilities                     26,606                   534                    (109)                  27,031
           Corporate bonds               223,958                  8,140                  (1,609)                230,489
           Mortgage-backed securities    51,266                   657                    (60)                   51,863
           Redeemable preferred stock    3,581                    188                    (60)                   3,769
             Total fixed maturity        367,372                  10,394                 (5,190)                372,576
             securities
Equity securities                        55                       --                     (3)                    52
             Total                       $367,427                 $10,394                $(5,193)               $372,628
                                                                            December 31, 1996
                                                                       Gross                  Gross
                                             Amortized            Unrealized Gain          Unrealized                Fair
                                               Cost                                          (Loss)                  Value
Fixed maturity securities:
           United States Treasury
           securities and
             obligations of United       $20,753                  $51                    $(420)                 $20,384
             States government agencies
           Obligations of states and
           political                     3,588                    106                    --                     3,694
             subdivisions
           Foreign government securities 10,042                   51                     (166)                  9,927
           Utilities                     31,000                   295                    (675)                  30,620
           Corporate bonds               210,977                  3,086                  (3,539)                210,524
           Mortgage-backed securities    72,264                   247                    (919)                  71,592
           Redeemable preferred stock    527                      42                     --                     569
             Total fixed maturity        349,151                  3,878                  (5,719)                347,310
             securities
Equity securities                        58                       4                      --                     62
             Total                       $349,209                 $3,882                 $(5,719)               $347,372
</TABLE>

      The fair values for fixed maturity securities are based  on quoted market
prices,  where  available.  For fixed maturity securities not actively  traded,
fair  values  are estimated using  values  obtained  from  independent  pricing
services or by  discounting  expected  future cash flows using a current market
rate applicable to the coupon rate, credit and maturity of the investments.

      SMC  balances  the  duration of its invested  assets  with  the  expected
duration of benefit payments arising from insurance liabilities. The "duration"
of a security is the time-weighted  present  value of the security's cash flows
and  is used to measure a security's price sensitivity  to  changes  in  market
interest  rates.  At December 31, 1997, the adjusted modified duration of fixed
maturities and short-term  investments  for its U.S. insurance subsidiaries was
5.6 years compared to 5.5 years at December 31, 1996.

<PAGE>
      The amortized cost and estimated fair  value of fixed maturity securities
at December 31, 1997 by contractual maturity are  shown  below  (in thousands).
Actual maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or prepayment
penalties  and  because  most  mortgage-backed securities provide for  periodic
payments throughout their lives.
<TABLE>
<CAPTION>
                                                  Amortized                           Fair
                                                    Cost                              Value
<S>                                          <C>                               <C>
Due in one year or less                      $4,560                            $4,551
Due after one year through five years        31,597                            32,048
Due after five years through ten years       141,805                           140,972
Due after ten years                          134,561                           139,373
   Subtotal                                  312,523                           316,944
Redeemable preferred stock                   3,581                             3,769
Mortgage-backed securities                   51,266                            51,863
   Total fixed maturity securities           $367,370                          $372,576
</TABLE>


      SMC's investment strategy  is  guided by strategic objectives established
by the Investment Committee of the Board  of  Directors of Standard Life. SMC's
major investment objectives are: (i) to ensure  adequate  safety of investments
and  to  protect  and  enhance  capital; (ii) to maximize after-tax  return  on
investments; (iii) to match the anticipated  duration  of  investments with the
anticipated  duration  of  policy  liabilities; and (iv) to provide  sufficient
liquidity to meet cash requirements with minimum sacrifice of investment yield.
Consistent with its strategy, SMC invests  primarily  in securities of the U.S.
government  and  its  agencies,  investment  grade utility and  corporate  debt
securities and collateralized mortgage obligations  ("CMOs"). From time to time
when  opportunities arise, however, below investment grade  securities  may  be
purchased.  Protection against default risk is a primary consideration. SMC has
determined it  will  not  invest  more  than  7% of its bond portfolio in below
investment grade securities.

      The  following  table  sets forth the quality  of  SMC's  fixed  maturity
securities as of December 31,  1997,  classified in accordance with the ratings
assigned by the National Association of Insurance Commissioners ("NAIC"):

                                                 Percent of Fixed
               NAIC RATING (1)                  MATURITY SECURITIES

               1                                        48%
               2                                        47
                  Investment Grade                      95
               3-4                                       4
               5-6                                       1
                  Below Investment Grade                 5
                       Total fixed maturity securities 100%

(1)   The  NAIC assigns securities quality  ratings  and  uniform  book  values
      called  "NAIC  Designations,"  which  are used by insurers when preparing
      their annual statements. The NAIC assigns  ratings  to publicly traded as
      well  as privately-placed securities. The ratings assigned  by  the  NAIC
      range from  Class  1  to  Class  6, with a rating in Class 1 being of the
      highest quality.

      SMC  engages Conseco Capital Management  Inc.  ("CCM"),  a  wholly  owned
subsidiary of  Conseco,  Inc.,  to  manage  SMC's  invested  assets (other than
mortgage  loans, policy loans, real estate and other invested assets),  subject
to the direction  of SMC's Investment Committee. A quarterly fee equal to .035%
of the total market  value of the assets under management as of the end of each
quarter is paid to CCM for its investment advisory services.

      Approximately 14% of SMC's fixed maturity securities at December 31, 1997
is  comprised of mortgage-backed  securities.  Investments  in  mortgage-backed
securities   include   CMOs   and   mortgage-backed   pass-through  securities.
Approximately 96% of the book value of the mortgage-backed  securities in SMC's
portfolio is backed by an agency of the U.S. government (although generally not
by the full faith and credit of the U.S. government) as to the  full  amount of
both   principal   and   interest.  Approximately  9%  of  the  book  value  of
mortgage-backed securities  in  SMC's portfolio is backed by the full faith and
credit of the U.S. government as  to  the  full  amount  of  both principal and
interest. SMC closely monitors the market value of all investments  within  its
mortgage-backed portfolio.

<PAGE>
      The  following  table  summarizes  SMC's  mortgage-backed  securities  at
December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
                                                                                                        Estimated          Avg.
                                                         % of                            % of           Avg. Life          Term
                                      Amortized          Fixed           Fair            Fixed             of            to Final
                                        Cost          Maturities         Value        Maturities       Investment        Maturity
<S>                                 <C>               <C>             <C>             <C>             <C>               <C>
                                                                                                       (In Years)       (In Years)
Agency CMOs:
Planned and target amortization     $23,034           6.3%            $23,142         6.2%            7.1               24.4
classes
Sequential and support classes      2,150             .6              2,116           .6              4.6               26.4
               Total                25,184            6.9             25,258          6.8             6.8               26.4
Non-agency CMOs:
             Sequential classes     1,591             .4              1,636           .4              2.8               20.6
Total CMOs                          26,775            7.3             26,894          7.2             6.8               24.4
Agency mortgage-backed pass-through
             securities             24,491            6.7             24,969          6.7             4.6               15.9
               Total mortgage-      $51,266           14.0%           $51,863         13.9%           6.4               19.5
               backed securities
</TABLE>

      The  market  values  for SMC's mortgage-backed securities were determined
from broker-dealer market makers,  internally  developed methods and nationally
recognized statistical rating organizations.

      Certain mortgage-backed securities are subject  to significant prepayment
risk, since, in periods of declining interest rates, mortgages  may  be  repaid
more  rapidly than scheduled as individuals refinance higher rate mortgages  to
take  advantage   of   the  lower  current  rates.  As  a  result,  holders  of
mortgage-backed securities  may  receive  large prepayments on their investment
which cannot be reinvested at an interest rate  comparable  to  the rate on the
prepaying  mortgages.  SMC  has  addressed  this  risk  of  prepayment risk  by
investing 45% of its mortgage-backed investment portfolio in planned and target
amortization  classes.  These investments are designed to amortize  in  a  more
predictable manner by shifting the primary risk of prepayment of the underlying
collateral to investors in  other tranches ("support classes"). Mortgage-backed
pass-through securities, "sequential"  and  support class CMOs, which comprised
approximately  55%  of the book value of SMC's  mortgage-backed  securities  at
December 31, 1997, are more sensitive to this prepayment risk.

SEPARATE ACCOUNTS

      Separate account  assets  and  liabilities  are  maintained primarily for
universal life contracts of which the majority represents  unit-linked business
where  benefits  on surrender and maturity are not guaranteed.  They  generally
represent funds held  in  accounts  to  meet  specific investment objectives of
policyholders who bear the investment risk. Investment  income  and  investment
gains and losses accrue directly to such policyholders.

UNDERWRITING

      Premiums  charged  on insurance products are based in part on assumptions
about the incidence and timing of insurance claims. SMC has adopted and follows
underwriting procedures for  both  its  whole life and universal life insurance
policies.  To  implement  these  procedures,   SMC   employs   a   professional
underwriting  staff. All underwriting decisions are made in SMC's home  office.
To the extent that  an applicant does not meet SMC's underwriting standards for
issuance of a policy  at  the  standard  risk  classifications, SMC may rate or
decline the application. Underwriting with respect  to  FPDAs  is  minimal.  No
underwriting  procedures  are  applied  to  Standard  Life's $10,000 conversion
policy or Standard Management International's unit-linked business.

      Traditional underwriting procedures are not applied  to policies acquired
in  blocks.  In  these cases, SMC reviews the mortality experience  for  recent
years  and  compares  actual  experience  to  that  assumed  in  the  actuarial
projections for the acquired policies.

RESERVES

      In  accordance   with   applicable   insurance   laws,   SMC's  insurance
subsidiaries  have  established  and  carry  as liabilities in their  statutory
financial  statements  actuarially  determined  reserves   to   satisfy   their
respective  annuity  contract  and life insurance policy obligations. Reserves,
together with premiums to be received  on  outstanding  policies  and  interest
thereon  at  certain  assumed rates, are calculated to be sufficient to satisfy
policy and contract obligations. The actuarial factors used in determining such
reserves are based on statutorily  prescribed  mortality  tables  and  interest
rates.

<PAGE>
      The  reserves  recorded in the consolidated financial statements included
elsewhere herein are calculated  based  on GAAP and differ from those specified
by  the  laws of the various states and recorded  in  the  statutory  financial
statements  of  SMC's  insurance subsidiaries. These differences arise from the
use  of  different  mortality   tables   and  interest  rate  assumptions,  the
introduction of lapse assumptions into the  reserve  calculation and the use of
the net level premium reserve method on all insurance  business.  See Note 1 of
the  Notes  to  the  Consolidated  Financial  Statements for certain additional
information regarding reserve assumptions under GAAP.

      To determine policy benefit reserves for  its  life insurance and annuity
products,  SMC  performs  periodic  studies to compare current  experience  for
mortality,  interest  and  lapse  rates  with   projected  experience  used  in
calculating the reserves. Differences are reflected  currently  in earnings for
each   period.   SMC  historically  has  not  experienced  significant  adverse
deviations from its assumptions.

REINSURANCE

      Consistent with  the general practice of the life insurance industry, SMC
has reinsured portions of  the coverage provided by its insurance products with
other  insurance companies under  agreements  of  indemnity  reinsurance.   The
policy risk  retention  limit on the life of any one individual does not exceed
$150,000.

      Indemnity reinsurance  agreements  are intended to limit a life insurer's
maximum loss on a particular risk or to obtain  a  greater  diversification  of
risk.  Indemnity  reinsurance  does  not discharge the primary liability of the
original  insurer  to the insured, but it  is  the  practice  of  insurers  for
statutory  accounting   purposes  (subject  to  certain  limitations  of  state
insurance statutes) to account  for  risks which have been reinsured with other
approved companies, to the extent of the  reinsurance,  as  though they are not
risks  for  which the original insurer is liable. However, under  Statement  of
Financial Accounting  Standards No. 113 ("SFAS 113"), "Accounting and Reporting
for Reinsurance of Short-Duration  and  Long-Duration  Contracts" these amounts
are added back to policy reserves and recorded as amounts due from reinsurers.

      Reinsurance ceded on life insurance policies to unaffiliated companies by
SMC in 1997, 1996 and 1995 represented 51.9%, 57.6% and 68.8%, respectively, of
gross combined individual life insurance in force at the  end  of  such  years.
Reinsurance assumed in the normal course from unaffiliated companies by SMC  in
1997,  1996  and  1995  represented  .02%,  .02% and .03%, respectively, of net
combined  individual life insurance in force excluding  reinsurance  from  GIAC
described below.  SMC cedes reinsurance to numerous reinsurers. At December 31,
1997, approximately  $398,456,000  of  the  face  value  of  life  policies and
reinsurance  recoverable  of $2,648,000 had been ceded to The Lincoln  National
Life Insurance Company ("Lincoln  National"), $188,524,000 of the face value of
life policies and reinsurance recoverable  of $1,021,000 ceded to Swiss Re Life
and Health ("Swiss Re") and $169,869,000 of the face value of life policies and
reinsurance recoverable of $1,179,000 had been ceded to Security Life of Denver
Insurance Company ("Security Life").  Lincoln  National  is  the lead reinsurer
with  a  total of 31.3% of total reinsurance ceded with Swiss Re  and  Security
Life each  accounting  for  14.9% and 13.3%, respectively, of total reinsurance
ceded by SMC's life insurance  subsidiaries at December 31, 1997. The amount of
life insurance business ceded to  any other reinsurer is not material. Of SMC's
total life insurance in force at December 31, 1997 that is reinsured, 100.0% is
ceded to insurers rated "A" or better  by  A.M.  Best. SMC historically has not
experienced any material losses in collection of reinsurance receivables.

      Commencing  January  1,  1995, SMC began to reinsure  a  portion  of  its
annuity business. The primary purposes  of  the  reinsurance  agreement were to
limit  the net loss arising from large risks, maintain SMC's exposure  to  loss
within capital  resources,  and  provide additional capacity for future growth.
Furthermore, these reinsurance agreements  have allowed SMC to write volumes of
business  that  it  would  not  otherwise  have  been  able  to  write  due  to
restrictions  based  on its ratio of surplus to liabilities  as  determined  by
regulatory authorities  in the State of Florida. By reinsuring a portion of the
annuity business, the liability  growth is slowed, thereby avoiding the erosion
of surplus that can occur in periods  of  increasing  sales.  If SMC's ratio of
surplus to liabilities falls below 4%, the State of Florida could  prohibit SMC
from  writing  new  business  in  Florida.  SMC's largest annuity reinsurer  at
December  31,  1997,  Winterthur  Life  Re  Insurance  Company  ("Winterthur"),
represented $32,194,000, or 52.3% of total reinsurance  recoverable, $8,707,000
of premium deposits ceded in 1997 and is rated "A" ("Excellent")  by A.M. Best.
From  January  1,  1995  to  August  31,  1995 approximately 70% of certain  of
Standard  Life's  annuity  business  produced  was  ceded.  SMC  decreased  the
quota-share portion of business ceded to 50% at  September  1, 1995 and further
reduced  it to 25% effective April 1, 1996. This reduction was  possible  since
the surplus  strain experienced by Standard Life was not as great as originally
anticipated as  a  result of lower than expected sales in 1995 and the increase
in surplus resulting  from  the  sale of First International. Winterthur limits
dividends and other transfers by Standard  Life  to SMC or affiliated companies
if  adjusted  surplus  is  less than 5.5% of admitted  assets,  $20,192,000  at
December 31, 1997.

      On  March  18,  1996,  Standard   Life   completed   the  sale  of  First
International  to GIAC. Standard Life received sale proceeds  of  approximately
$10,393,000 including  $1,500,000  for the charter and licenses associated with
First International. Standard Life realized a net pretax gain of $1,042,000 and
a tax benefit of $1,420,000 on the sale. First International, Standard Life and
GIAC  have  entered  into a series of reinsurance  and  other  agreements  that
include provisions for Standard Life to administer First International policies
in force at the date of  sale, and for Standard Life to continue to receive the
profit stream from certain  First  International  policies  in  force effective
January 1, 1996.

      All  the  in force business of First International effective  January  1,
1996 was ceded to  GIAC  through a coinsurance indemnity reinsurance agreement.
Under  the  terms  of  the  agreement,   approximately   $18,841,000  of  First
International's reserves and assets of $18,841,000 were ceded  to  GIAC  as  of
January  1,  1996.  The assets transferred included cash of $17,046,000, policy
loans of $1,371,000,  and  net  due  and  deferred premiums of $424,000. The in
force  business  related  to this automatic coinsurance  indemnity  reinsurance
agreement is comprised of the  following  two  blocks:  ("Block I") -- ordinary
life  policies (issued in New York and New Jersey), universal  life,  immediate
and  deferred   annuities  (issued  in  New  York,  New  Jersey  and  Vermont),
supplemental contracts  and  group  waivers,  and ("Block II") -- ordinary life
policies (not issued in New York and New Jersey) issued prior to 1989, and term
life policies (issued in New York, New Jersey and Vermont) issued after 1988.

      Effective  January  1,  1996, GIAC entered into  a  modified  coinsurance
indemnity reinsurance agreement with Standard Life with respect to Blocks I and
II. Pursuant to this agreement,  Standard Life administers the policies in both
Block I and Block II. Under the terms  of  the agreement, Standard Life assumed
approximately $18,841,000 of reserves for Block  I and Block II from GIAC as of
January 1, 1996. During 1996, Standard Life incurred and paid experience rating
refunds to GIAC on Block I for profits earned in excess  of  specified amounts.
These refunds were calculated and paid on a quarterly basis. As  a  result, the
economic  risks  and  benefits  associated  with  Block  I  remained with GIAC.
Effective January 1, 1997, GIAC and Standard Life executed Amendment  I  to the
modified  coinsurance  indemnity  reinsurance  agreement.  Under  the  terms of
Amendment  I,  GIAC and Standard Life agreed to terminate effective January  1,
1997 the modified  coinsurance  indemnity  reinsurance agreement with regard to
Block  I,  and Block I reverted completely to  GIAC.  In  accordance  with  the
provisions of  SFAS  60,  SFAS  97,  and  SFAS  113  for a reinsurance assuming
enterprise,  in  accordance  with  deposit accounting, Standard  Life  has  not
recorded revenue or expense during 1996  for  the Block I reinsurance. A ceding
commission of $1,100,000 received by First International in connection with the
sale was deferred by First International in accordance with FAS 113. When First
International was sold, the amount was paid to  SMC  by  GIAC  as part of First
International's  statutory  capital and surplus. There is no experience  rating
refund on Block II and, accordingly, the economic risks and benefits associated
with Block II remain with Standard  Life.  Under  the  terms of the reinsurance
agreement, Standard Life is permitted to appoint an investment  advisor subject
to  approval  from  GIAC  for the Block II assets. Standard Life has  appointed
Gibraltar  Investments  as  such   investment  advisor  for  Block  II  assets.
Investment advisory fees are paid from  the Block II assets and reduce Block II
profits. The Block II contract was determined  to be a risk transfer assumption
reinsurance contract by Standard Life in accordance with SFAS 113.

      As  part  of  the  acquisition of First International  by  SMC  in  1992,
Standard  Life entered into  an  indemnity  reinsurance  agreement  with  First
International effective July 1, 1992. This business was subsequently assumed by
Standard Life  effective  January  1,  1993.  At  the date of the sale of First
International to GIAC, Standard Life ceded this block  of  business with policy
reserves of $12,514,000 and related assets to GIAC. Consideration  of  $700,000
paid  in  connection  with  the purchase agreement represented additional sales
proceeds. All risks and rewards  related to the $700,000 have occurred and have
therefore been recognized. This block  of  business  ("Block III") consisted of
term life policies (not issued in New York, New Jersey or Vermont) issued after
1988 and immediate and deferred annuities (not issued  in  New York, New Jersey
and  Vermont)  and  lottery annuities. Standard Life will continue  to  receive
profits  from  Block  III  through  experience  rating  refunds  from  GIAC  on
Block III. These experience rating refund calculations are prepared and paid on
a quarterly basis for profits  in  excess  of specified amounts. The experience
rating refund payments will continue so long  as any of the underlying policies
remain in force. Under the terms of the reinsurance agreement, Standard Life is
permitted to appoint an investment advisor subject  to  approval  from GIAC for
the Block III assets. Standard Life has appointed Gibraltar Investments as such
investment advisor for Block III assets. Investment advisory fees are paid from
the  Block  III  assets  and  reduce  the  experience rating refunds. For  GAAP
accounting purposes, Standard Life concluded that this contract did not involve
the transfer of risk to GIAC in accordance with SFAS 113.

      SMC  decided  in  February 1996 to terminate  the  reinsurance  agreement
between Standard Reinsurance  and  Salamandra,  and  to  not renew the Barbados
license of Standard Reinsurance. This resulted in the termination  of  Standard
Reinsurance's  operations  and  the  write-off  of SMC's investment in Standard
Reinsurance and certain intangible assets of Standard  Reinsurance amounting to
$156,000.

      Standard  Life  terminated  by  recapture  in  May 1996  the  reinsurance
agreement with National Mutual. Standard Life received assets of $4,826,000 and
liabilities of $4,826,000, primarily ordinary life policies. In connection with
this transaction, Standard Life agreed to pay National  Mutual  a recapture fee
of  $1,200,000,  and  Standard  Life collected administration fees of  $375,000
related  to  services  provided in prior  years  that  had  not  been  recorded
previously due to the uncertainty  as  to  its  collection. The net proceeds of
$825,000 were recorded as the present value of the future profits on this block
of business, which is being amortized in proportion to the emergence of profits
over 20 years. The premium income, and corresponding  increase  in reserves, of
$4,234,000,  recorded  in  connection  with  the  recapture  of the reinsurance
agreement with National Mutual will not recur in the future.

      In  order to write an increasing amount of new business while  continuing
to meet the  statutory  requirements  of  the  states  in which it conducts its
insurance operations, it has been necessary for Dixie National  Life to utilize
various  forms  of surplus relief. The principal source of surplus  relief  has
been financial reinsurance  agreements,  which for GAAP purposes are treated as
financing arrangements, but for statutory  accounting  purposes provide reserve
credits that, in equal amount, increase statutory surplus.  Dixie National Life
has  a  financial  reinsurance  agreement that entitles it to a credit  to  its
statutory reserves of $1,250,000  at  December 31, 1997, with the amount of the
credit  decreasing each quarter by the amount  of  profit  generated  to  Dixie
National Life by the underlying block of business.

COMPETITION

      The life insurance industry is highly competitive and consists of a large
number of  both  stock  and  mutual  insurance  companies,  many  of which have
substantially greater financial resources, broader and more diversified product
lines  and  larger  staffs than those possessed by SMC. There are approximately
2,000 life insurance  companies  in the United States which may offer insurance
products  similar  to  those marketed  by  SMC.  Competition  within  the  life
insurance industry occurs on the basis of, among other things, product features
such as price and interest rates, perceived financial stability of the insurer,
policyholder service, name recognition and ratings assigned by insurance rating
organizations. Additionally,  when  SMC bids on companies it wishes to acquire,
it typically is in competition with other entities.

      SMC must also compete with other  insurers  to  attract  and  retain  the
allegiance  of  agents.  SMC  believes it has been successful in attracting and
retaining agents because it has  been  able  to  offer a competitive package of
innovative products, competitive commission structures,  prompt policy issuance
and responsive policyholder service. Because most annuity  business  written by
life companies is through agents, management believes that competition  centers
more  on the strength of the agent relationship rather than on the identity  of
the insurer.

      Competition  also  is  encountered  from  the  expanding number of banks,
securities  brokerage  firms  and  other  financial  intermediaries  which  are
marketing insurance products and which offer competing products such as savings
accounts  and  securities. In the case of banks, these insurance  products  are
sold for non-affiliate  insurance companies in return for a sales fee. A change
in legislation may increase  interest  on  the  part  of banks to begin selling
annuities or to expand their existing efforts to sell annuities.  The  decision
could result in a partial shift in the distribution of annuities from insurance
agents  to national banks, which, in turn, could result in a decrease in  sales
for SMC,  or  it  could  result  in an increase in the number of annuities sold
because of distribution through national  banks  (or  securities  firms), which
could  result  in  new  distribution  opportunities  for SMC. SMC has not  been
involved in distribution of annuities through national  banks  but  anticipates
expansion into financial institutions with the acquisition of Savers Life.

      The unit-linked life insurance market in Europe is highly competitive and
consists  of  many  companies  domiciled in the United Kingdom and its offshore
centers,  as  well as many companies  in  Luxembourg  and  Ireland  which  sell
products similar  to  those  of  Standard  Management  International.  Standard
Management International is able to develop its share of  a  competitive market
by developing strong relationships with high-quality independent intermediaries
and by continual innovation in the design of niche market products.

      Financial institutions, school districts, marketing companies, agents who
market insurance products and policyholders use the ratings of  an  insurer  as
one  factor  in  determining  which  insurer's  annuity  to market or purchase.
Standard  Life  and  Dixie  National  Life  have  a  rating  of "B+"  and  "B",
respectively by A.M. Best.  Savers Life is not rated by A.M. Best.  A rating of
"B+"  is  assigned  by  A.M.  Best  to companies which, in their opinion,  have
achieved  very  good  overall  performance   when  compared  to  the  standards
established by A.M. Best, and have a good ability  to meet their obligations to
policyholders over a long period of time.  A rating  of "B" is assigned by A.M.
Best  to  companies  which,  in  their  opinion,  have  achieved  good  overall
performance when compared to the standards established by  A.M. Best. According
to A.M. Best, these companies generally have an adequate ability  to meet their
obligations  to  policyholders,  but their financial strength is vulnerable  to
unfavorable changes in underwriting  or  economic  conditions.  In evaluating a
company's financial and operating performance, A.M. Best reviews  the company's
profitability,  leverage  and  liquidity  as  well  as  the  company's book  of
business,  the  adequacy  and  soundness  of  its reinsurance, the quality  and
estimated market value of its assets, the adequacy  of  its  reserves  and  the
experience and competence of its management. A.M. Best's ratings are based upon
factors relevant to policyholders, agents, insurance brokers and intermediaries
and are not directed to the protection of investors. Generally, rating agencies
base  their  ratings  on  information  furnished  to  them by the issuer and on
investigations,  studies and assumptions by the rating agencies.  There  is  no
assurance that any particular rating will continue for any given period of time
or that it will not be changed or withdrawn entirely if, in the judgment of the
rating agency, circumstances  so warrant. Although a higher rating by A.M. Best
or another insurance rating organization  could  have  a  favorable  effect  on
Standard  Life  and  Dixie  National  Life's business, management believes that
Standard Life and Dixie National Life are able to compete on the basis of their
competitive  crediting  rates,  asset  quality,  strong  relations  with  their
independent agents and the quality of service to their policyholders.

FEDERAL INCOME TAXATION

      The life insurance and annuity products  marketed  and issued by Standard
Life and Dixie National Life generally provide the policyholder  with an income
tax advantage, as compared to other saving investments such as certificates  of
deposit  and  bonds,  in  that  income taxation on the increase in value of the
product is deferred until receipt  by  the  policyholder.  With  other  savings
investments,  the increase in value is taxed as earned. Life insurance benefits
which accrue prior  to  the  death of the policyholder and annuity benefits are
generally  not  taxable  until paid  and  life  insurance  death  benefits  are
generally exempt from income  tax.  The  tax  advantage  for life insurance and
annuity  products  is  provided in the Internal Revenue Code  ("IRC"),  and  is
generally followed in all  states and other United States taxing jurisdictions.
Accordingly, it is subject to  change  by  Congress and the legislatures of the
respective taxing jurisdictions.

      SMC, Standard Marketing and other U.S.  non-insurance subsidiaries file a
consolidated return for federal income tax purposes.  Standard  Life  and Dixie
National  Life, as life insurance companies, filed separate federal income  tax
returns for  1996 and prior years. For 1997 and subsequent years, Standard Life
and Dixie National  Life  are eligible to file a life/life consolidated return.
As of December 31, 1997, SMC,  Standard  Marketing and other U.S. non-insurance
subsidiaries had consolidated net operating loss carryforwards of approximately
$9,320,000 for tax return purposes which expire from 2005 to 2012.

      At  December  31, 1997, the Standard Life  consolidated  return  had  tax
return net operating  loss  carryforwards  of  approximately  $4,100,000, which
expire in 2010 and 2012.  These carryforwards will be available  to  reduce the
taxable  income  of  the  Standard  Life  consolidated  return.   The change in
ownership of Savers Life will not result in additional limitations  on  the use
of the loss carryforwards available to Standard Life.

      Standard  Management  International is a Luxembourg holding company which
is currently exempt from Luxembourg  income  tax.  Premier  Life  (Bermuda)  is
exempt  from income tax until March 2016 pursuant to a decree from the Minister
of Finance.  Premier Life (Luxembourg) is subject to Luxembourg income taxation
(statutory corporate  rate  of 39.39%) and a capital tax of approximately 1% of
its net equity. At December 31, 1997, Premier Life (Luxembourg) had accumulated
corporate income tax loss carryforwards  of  approximately  $3,960,000,  all of
which  may  be carried forward indefinitely. To the extent that such income  is
taxable under  U.S.  law,  such  income  will be included in SMC's consolidated
return.

INFLATION

      The  primary  direct  effect  on SMC of  inflation  is  the  increase  in
operating expenses. A large portion of  SMC's  operating  expenses  consists of
salaries  which are subject to wage increases at least partly affected  by  the
rate of inflation.  SMC  attempts  to  minimize  the  impact  of  inflation  on
operating expenses through programs to improve productivity.

      The  rate  of inflation also has an indirect effect on SMC. To the extent
that the government's economic policy to control the level of inflation results
in changes in interest  rates,  SMC's  new  sales  of  insurance  products  and
investment  income  are  affected.  Changes in the level of interest rates also
have an effect on interest spreads, as investment earnings are reinvested.

FOREIGN OPERATIONS AND CURRENCY RISK

      SMC's foreign operations represent  the Standard Management International
group which consists of a Luxembourg holding  company  and  two  life insurance
subsidiaries:  Premier  Life (Luxembourg) and Premier Life (Bermuda).  Standard
Management International  policyholders invest in assets denominated in a broad
range of currencies. Policyholders  effectively bear the currency risk, if any,
as these investments are matched by policyholder  separate account liabilities.
Therefore, their investment and currency risk is limited  to premiums they have
paid. Policyholders are not permitted to invest directly into  options, futures
and derivatives.

      Standard   Management   International   could   be  exposed  to  currency
fluctuations  if  currencies  within the conventional investment  portfolio  or
certain actuarial reserves are  mismatched.  The assets and liabilities of this
portfolio  and  the reserves are continually matched  by  the  company  and  at
regular intervals  by  the  independent  actuary.  In  addition,  Premier  Life
(Luxembourg)'s  stockholder's  equity  is  denominated  in  Luxembourg  francs.
Premier  Life  (Luxembourg)  does  not  hedge it's translation risk because its
stockholder's  equity  will remain in Luxembourg  francs  for  the  foreseeable
future  and no significant  realized  foreign  exchange  gains  or  losses  are
anticipated.  At  December  31,  1997, there is an unrealized loss from foreign
currency translation adjustment of $473,000.

      Due to the nature of unit-linked  products  issued by Standard Management
International,   which   represent   over   94%  of  the  Standard   Management
International  portfolio,  the investment risk  rests  with  the  policyholder.
Investment risk for Standard  Management  International  exists  where Standard
Management  International  makes  investment  decisions  with  respect  to  the
remaining traditional business and for the assets backing certain actuarial and
regulatory  reserves.  The  investments  underlying  these  liabilities  mostly
represent   short   term  investments  and  fixed  maturity  securities.  These
short-term investments and fixed maturity securities are normally bought and/or
disposed of only on the  advice of independent consulting actuaries who perform
an annual exercise comparing  anticipated cash flows on the insurance portfolio
with the cash flows from the fixed  maturity securities. Any resulting material
foreign currency mismatches are then  covered  by  buying  and/or  selling  the
securities as appropriate.

REGULATORY FACTORS

      SMC's  insurance  subsidiaries are subject to regulation by the insurance
regulatory authorities in the jurisdictions in which they are domiciled and the
insurance regulatory bodies  in  the  other  jurisdictions  in  which  they are
licensed  to  sell  insurance.  The purpose of such regulation is primarily  to
ensure the financial stability of insurance companies and to provide safeguards
for policyholders rather than to  protect  the  interest  of  stockholders. The
insurance  laws  of  various  jurisdictions establish regulatory agencies  with
broad administrative powers relating  to  the  licensing  of insurers and their
agents, the regulation of trade practices, management agreements,  the types of
permitted  investments  and maximum concentration, deposits of securities,  the
form and content of financial statements, rates charged by insurance companies,
sales  literature  and  insurance   policies,   accounting  practices  and  the
maintenance of specified reserves, capital and surplus. Each of SMC's insurance
subsidiaries  is  required  to file detailed periodic  financial  reports  with
supervisory agencies in certain of the jurisdictions in which it does business.

      Most  states  have  enacted   legislation  regulating  insurance  holding
companies. The insurance holding company  laws  and  regulations vary by state,
but generally require an insurance holding company and  its  insurance  company
subsidiaries  licensed to do business in the state to register and file certain
reports  with the  regulatory  authorities,  including  information  concerning
capital  structure,   ownership,   financial  condition,  certain  intercompany
transactions and general business operations.  State  holding company laws also
require  prior  notice  or  regulatory  agency  approval  of  certain  material
intercompany transfers of assets within the holding company structure.

      As  a  holding  company,  Standard Management's ability to pay  operating
expenses and meet debt service obligations  if  any,  depends on the receipt of
sufficient funds, primarily through management fees, rental  income,  dividends
and interest payments on its Surplus Debentures from its subsidiaries.  Subject
to  the restrictions described below, Standard Management may receive dividends
from  its direct subsidiaries, Standard Life, Standard Management International
and Standard  Marketing.  Dixie National Life is a subsidiary of Standard Life.
Accordingly, any dividends  paid by Dixie National Life to Standard Life may be
paid to Standard Management only  if Standard Life is entitled to pay dividends
to Standard Management.

      Under Indiana insurance law,  Standard  Life  may  not enter into certain
transactions,  including  management  agreements  and service  contracts,  with
members of its insurance holding company system, including Standard Management,
unless Standard Life has notified the Indiana Department  of  Insurance  of its
intention  to  enter  into  such  transactions  and  the  Indiana Department of
Insurance  has not disapproved of them within the period specified  by  Indiana
law. Among other  things, such transactions are subject to the requirement that
their terms be fair  and  reasonable  and that the charges or fees for services
performed be reasonable.

      Pursuant to the management services  agreement  with Standard Management,
Standard Life paid Standard Management a monthly fee of $166,667 (annual fee of
$2,000,000)  during  1997  for  certain  management  services  related  to  the
production  of business, investment of assets and evaluation  of  acquisitions.
Pursuant  to the  management  service  agreements  with  Standard  Life,  Dixie
National Life  paid  monthly  payments of $83,333 (annual fee of $1,000,000) to
Standard Life in 1997. Both of  these  agreements  provide  that  they  may  be
modified  or terminated by the Indiana and Mississippi departments of insurance
in the event of financial hardship of Standard Life or Dixie National Life.

      A management  services agreement between SMC and Savers Life was approved
by  the  North Carolina  Department  of  Insurance  on  March  11,  1998.   The
management  services agreement calls for the payment of $83,333 per month 
by Savers Life to SMC for financial and regulatory reporting, investment of 
assets and the production of business.  SMC has agreed to receive no fee, nor
shall Savers Life have an obligation to pay, unless the capital and surplus 
of Savers Life is $7,000,000 after the acquisition of Savers Life.  The
amount of capital  and  surplus  of  Savers  Life  at  December  31,  1997  was
$7,134,000.

      In  addition,  as  a  condition  of  the  acquisition of Savers Life, SMC
entered into an agreement with the North Carolina  Department  of  Insurance to
maintain statutory capital and surplus of Savers Life of at least $6,000,000.

      Dividends  from  Standard Life to Standard Management are limited by laws
applicable to insurance  companies.  As an Indiana domiciled insurance company,
Standard  Life may pay a dividend or distribution  from  its  surplus  profits,
without the  prior  approval  of  the Commissioner of the Indiana Department of
Insurance, if the dividend or distribution,  together  with all other dividends
and distributions paid within the preceding twelve months,  does not exceed the
greater of (i) net gain from operations or (ii) 10% of surplus, in each case as
shown in its preceding annual statutory financial statements.  Also, regulatory
approval is required when dividends to be paid exceed unassigned  surplus.  For
the  year  ended  December  31, 1997, Standard Life reported statutory net gain
from operations before net realized  capital losses of $2,374,000 and statutory
surplus  of  $25,923,000  which  includes  unassigned  surplus  of  $1,693,000.
During 1998, Standard Life can pay dividends of approximately $2,500,000 
without regulatory approval.

      The  Indiana  insurance  laws  and regulations require that the statutory
surplus of Standard Life following any  dividend  or distribution be reasonable
in relation to its outstanding liabilities and adequate to its financial needs.
The Indiana Department of Insurance may bring an action  to  enjoin  or rescind
the payment of a dividend or distribution by Standard Life that would cause its
statutory surplus to be unreasonable or inadequate under this standard.

      Standard   Management   International   dividends   are  limited  to  its
accumulated   earnings   without   regulatory  approval.  Standard   Management
International and Premier Life (Luxembourg) were not permitted to pay dividends
in 1997 and 1996 due to accumulated losses.  Premier Life (Bermuda) did not pay
dividends in 1997 and 1996.  SMC does  not  anticipate any dividends from these
companies in 1998.  Pursuant to the management services agreement with Standard
Management, Premier Life (Luxembourg) paid Standard Management a management fee
of  $100,000  per  year  during  1997  and  1996  for  certain  management  and
administrative services. The agreement provides that  it  may  be  modified  or
terminated by either Standard Management or Premier Life (Luxembourg).

      As  a  North  Carolina domiciled insurance company, Savers Life may pay a
dividend or distribution  from  its  capital  and  surplus,  without  the prior
approval  of  the North Carolina Commissioner of Insurance, if the dividend  or
distribution together  with  all  other dividends and distributions paid within
the preceding twelve months, does not  exceed  the  lesser of (i) net gain from
operations or (ii) 10% of capital and surplus, in each  case  as  shown  in its
preceding  annual  statutory financial statements.  Savers Life was not allowed
to pay a dividend in  1996  or  1997 without prior North Carolina Department of
Insurance approval due to its statutory  net  losses  in 1995 and 1996.  Savers
Life will not be permitted to pay dividends in 1998 without such approval.

      Most states, including Indiana, require administrative  approval  of  the
acquisition  of  10%  or more of the outstanding shares of an insurance company
incorporated in the state  or the acquisition of 10% or more of the outstanding
shares  of  an  insurance  holding   company   whose  insurance  subsidiary  is
incorporated  in the state. The request for approval  must  be  accompanied  by
detailed  information   concerning  the  acquiring  parties  and  the  plan  of
acquisition. The acquisition  of  10%  of such shares is generally deemed to be
the acquisition of "control" for the purpose  of  the holding company statutes.
However, in many states the insurance authorities may  find  that  "control" in
fact does or does not exist in circumstances in which a person owns or controls
either a lesser or a greater amount of securities.

      In  some instances many state regulatory authorities require deposits  of
assets for  the  protection  of policyholders either in those states or for all
policyholders. At December 31,  1997,  securities representing approximately 4%
of the book value of SMC's U.S. insurance subsidiaries' invested assets were on
deposit with various state treasurers or custodians. Such deposits must consist
of securities that comply with the standards  that  the  particular  state  has
established.  Assets  of  Standard  Management  International  of $4,441,000 at
December  31,  1997  were  held by a custodian bank approved by the  Luxembourg
regulatory authorities to comply with local insurance laws.

      In recent years, the NAIC  and state insurance regulators have reexamined
existing laws and regulations and  their  application  to  insurance companies.
This  reexamination  has focused on insurance company investment  and  solvency
issues, risk-based capital  guidelines, assumption reinsurance, interpretations
of  existing  laws,  the  development   of  new  laws,  the  interpretation  of
nonstatutory guidelines, the standardization  of statutory accounting rules and
the circumstances under which dividends may be  paid.  The  NAIC has encouraged
states  to  adopt  model  NAIC laws on specific topics such as holding  company
regulations and the definition  of  extraordinary dividends. It is not possible
to predict the future impact of changing  state regulation on the operations of
SMC.

      The NAIC, as well as Indiana, Mississippi and North Carolina, has adopted
RBC  requirements  for U.S. life/health insurance  companies  to  evaluate  the
adequacy of statutory  capital  and  surplus  in  relation  to  investment  and
insurance  risks  such  as  asset  quality,  mortality and morbidity, asset and
liability  matching,  benefit  and loss reserve adequacy,  and  other  business
factors. The RBC formula is used  by  state  insurance  regulators  as an early
warning  tool  to  identify,  for  the purpose of initiating regulatory action,
insurance companies that potentially  are  inadequately  capitalized.  The  RBC
guidelines are intended to be a regulatory tool only, and are not intended as a
means  to  rank  insurers  generally.  In addition, the formula defines minimum
capital standards that supplement the previously  existing  system of low fixed
minimum capital and surplus requirements on a state-by-state  basis. Regulatory
compliance  is  determined  by  a  ratio  of the enterprise's regulatory  total
adjusted capital, as defined by the NAIC, to  its authorized control level RBC,
as defined by the NAIC. Enterprises below specific trigger points or ratios are
classified within certain levels, each of which  requires  specific  corrective
action.  If a company's RBC ratio is in the Company Action Level range  defined
as an RBC  ratio  of  1.5-2,  the company must submit a plan to improve its RBC
ratio. The Regulatory Action Level  range  defined  as  an  RBC  ratio of 1-1.5
provides  that  regulators  will  order  corrective  actions. At the Authorized
Control Level range defined as an RBC ratio of 0.7-1, regulators are authorized
to take control of the company. Finally, at the Mandatory Control Level defined
as ratios below 0.7, regulators must take over the company.  The  RBC ratios of
Standard  Life  and Dixie National Life are all in excess of 4 at December  31,
1997. The RBC ratio  of  Savers  Life  is  in excess of 3 at December 31, 1997.
However, should the insurance subsidiaries' RBC position decline in the future,
the insurance subsidiaries' continued ability  to  pay dividends and the degree
of  regulatory  supervision  or control to which they are  subjected  could  be
affected.

<PAGE>
      The NAIC calculates twelve  financial ratios based on statutory financial
statements  ("IRIS  ratios")  to assist  state  regulators  in  monitoring  the
financial condition of insurance companies. A "usual range" of results for each
ratio is used as a benchmark for  analysis, and a company's variation from this
range may be either favorable or unfavorable.  State  insurance departments may
make  inquiries  of SMC when at least four IRIS ratios are  outside  the  usual
range. These inquiries  could  lead  to  restrictions on the amount of business
that may be written in an individual state.  The  following  table presents the
IRIS  ratios  as determined by the NAIC for SMC's insurance subsidiaries  which
varied from the "usual range" for 1997.

Reported
COMPANY                       RATIO NAME                 USUAL RANGE      VALUE

Standard Life..........Change in Product Mix........... .   -  to 5.0   ... 7.4
Dixie National Life....Net Change in Capital and Surplus.. -10 to 50 .......-11
              .........Gross Change in Capital and Surplus -10 to 50 ...... -11
              .........Adequacy of Investment Income...... 125 to 900.......121
              .........Surplus Relief..................... -10 to 10 ........28
              .........Change in Premium.................. -10 to 50 .......-82
Savers Life............Net Income to Total Income.......... .- to 0  .........0
        ...............Change in Premium.................. -10 to 50 .......-23
        ...............Change in Reserving Ratio.......... -20 to 20 .......-79

   Explanation of Ratios:

   CHANGE IN PRODUCT  MIX.   This  ratio  represents  the average change in the
percentage  of  total  premium  from each product line during  the  year.   The
unusual ratio is due to the sale of First International and related reinsurance
agreements in 1996.

   CHANGE IN CAPITAL AND SURPLUS.   This  ratio,  calculated on a gross and net
basis, are a measure of improvement or deterioration in the company's financial
position  during  the  year.  The  negative value for Dixie  National  Life  is
primarily due to continuation of reserve strengthening recorded by direct 
charges to surplus of approximately $600,000 in 1997.

   ADEQUACY OF INVESTMENT INCOME.  This  ratio  indicates  whether an insurer's
investment  income  is  adequate  to  meet  the  interest requirements  of  its
reserves.   The ratio may indicate that Dixie National  Life's  net  investment
yield is not "adequate" to meet its interest required on reserves.

   SURPLUS RELIEF.   The  positive ratio for Dixie National Life results from a
financial reinsurance agreement  at  December 31, 1997. See "Business of SMC --
Reinsurance."

   CHANGE IN PREMIUM.  This ratio represents  the  percentage change in premium
from prior to current years.  The negative values for  Dixie  National  Life in
1997  relate  to  the  surplus relief reinsurance agreement transaction in 1996
increasing premium income in 1996. The negative value for Savers Life is due to 
the sale of the major medical business effective July 1, 1997.

   NET  INCOME TO TOTAL INCOME.   This  ratio  is  a  measure  of  a  company's
profitability.   The  unusual  value  for  Savers Life was primarily due to the
statutory loss from operations recorded in 1997.

   CHANGE IN RESERVING RATIO.  The change in  reserving  ratio  represents  the
number  of  percentage  points  of  difference  between the reserving ratio for
current and prior years.  The negative value for  Savers  Life  was  due to the
reserve  strengthening  within  the  life product line in the prior year.   The
majority of the life reserves consist  of whole life policies which have higher
reserve requirements than term policies.

   SMC  attempts  to  manage its assets and  liabilities  so  that  income  and
principal payments received from investments are adequate to meet the cash flow
requirements  of  its  policyholder   liabilities.  The  cash  flows  of  SMC's
liabilities  are  affected  by  actual  maturities,  surrender  experience  and
credited interest rates. SMC periodically  performs  cash  flow  studies  under
various interest rate scenarios to evaluate the adequacy of expected cash flows
from its assets to meet the expected cash requirements of its liabilities.  SMC
utilizes  these  studies to determine if it is necessary to lengthen or shorten
the average life and  duration  of  its  investment  portfolio.  Because of the
significant  uncertainties  involved  in the estimation of asset and  liability
cash flows, there can be no assurance that  SMC  will  be  able  to effectively
manage the relationship between its asset and liability cash flows.

   In  December  1995,  the  NAIC  passed  a  model law for disclosure in  life
insurance policy illustrations which became effective  on January 1, 1997. This
law did not have a significant effect on SMC. New rules adopted by the NAIC are
effective only to the extent adopted by the states in which  SMC  operates, and
it  is not possible to predict the future impact of changing state and  federal
regulation on the operations of SMC.

   The    statutory   filings   of   SMC's   insurance   subsidiaries   require
classifications  of  investments  and  the  establishment of an AVR, an account
designed to stabilize a company's statutory surplus against fluctuations in the
market value of stocks and bonds, according to  regulations  prescribed  by the
NAIC. The AVR account consists of two main components: a "default component" to
provide  for  future  credit-related  losses on fixed income investments and an
"equity component" to provide for losses  on  all  types of equity investments,
including real estate. The NAIC requires an additional reserve, called the IMR,
which consists of the portion of realized capital gains  and  losses  from  the
sale  of fixed income securities attributable to changes in interest rates. The
IMR is  required  to  be  amortized  against earnings on a basis reflecting the
remaining  period  to  maturity  of the fixed  income  securities  sold.  These
regulations  affect the ability of  SMC's  insurance  subsidiaries  to  reflect
future investment  gains  and  losses  in current period statutory earnings and
surplus.

   The  amounts  related  to  AVR and IMR for  the  insurance  subsidiaries  at
December 31, 1997 are summarized as follows (in thousands):

                                                 Maximum
                                          AVR      AVR      IMR

               Standard Life...........$3,236   $3,856   $8,474
               Dixie National Life........214      317      149

      The annual addition to the  AVR  for  1997  is 20% of the maximum reserve
over  the  accumulated  balance. If the calculated reserve  with  current  year
additions exceeds the maximum  reserve  amount,  the  reserve is reduced to the
maximum amount. For the year ended December 31, 1997, SMC's  U.S.  subsidiaries
each made the required contribution to the AVR.

      Most jurisdictions require insurance companies to participate in guaranty
funds designed to cover claims against insolvent insurers. Insurers  authorized
to   transact   business  in  these  jurisdictions  are  generally  subject  to
assessments based on annual direct premiums written in that jurisdiction to pay
such claims, if any.  These  assessments may be deferred or forgiven under most
guaranty laws if they would threaten  an  insurer's  financial strength and, in
certain  instances,  may  be  offset against future state  premium  taxes.  The
incurrence and amount of such assessments  have  increased  in recent years and
may increase further in future years.  The likelihood and amount  of all future
assessments cannot be reasonably estimated and are beyond the control of SMC.

      As part of their routine regulatory oversight process, approximately once
every three to five years state insurance departments conduct periodic detailed
examinations  ("Examinations") of the books, records and accounts of  insurance
companies domiciled  in  their  states.  Standard Life underwent an Examination
during 1996 for the five-year period ended  December 31, 1995. The final report
on such examination has been issued by the Indiana  Department of Insurance and
did not raise any significant issues.

      Although the federal government generally does  not directly regulate the
insurance industry, federal initiatives often have an impact  on  the business.
Congress  and certain federal agencies are investigating the current  condition
of the insurance  industry  (encompassing both life and health and property and
casualty insurance) in the United  States  in order to decide whether some form
of federal role in the regulation of insurance  companies would be appropriate.
Congress is currently conducting a variety of hearings  relating  in general to
insurers.  It  is not possible to predict the outcome of any such congressional
activity nor the potential effects thereof on SMC.

      Congressional  initiatives  have  been  introduced  which are directed at
repeal of the McCarran-Ferguson Act (which exempts the "business  of insurance"
from  most  federal laws to the extent it is subject to state regulation),  and
judicial decisions have been issued which narrow the definition of "business of
insurance" for  McCarran-Ferguson  Act  purposes.  Current and proposed federal
measures may also significantly affect the insurance industry including removal
of barriers preventing banks from engaging in the insurance business.

EMPLOYEES

      As  of  March  13,  1998,  SMC had 139 employees: Standard  Life  had  58
employees, Savers Life had 47 employees,  Standard Management International had
16  employees  (9  of whom are covered by a collective  bargaining  agreement),
Standard Marketing had  10  employees, and Standard Management had 8 employees.
SMC believes that its future  success  will  depend, in part, on its ability to
continue to attract and retain highly-skilled technical, marketing, support and
management personnel. Management believes that  it has excellent relations with
its employees.

ITEM 2.  PROPERTIES

      SMC leases approximately 31,000 square feet in an office building located
at 9100 Keystone Crossing, Indianapolis, Indiana,  under  the  terms of a lease
which expires on June 1, 2001. SMC entered into a lease on March  31, 1997, for
approximately  16,000  square  feet  in  a  warehouse  located  at  2525  North
Shadeland,  Indianapolis, Indiana, under the terms of a lease which expires  on
September 30, 1999.

      Standard  Management  International  entered into a lease on November 17,
1997 for approximately 4,500 square feet in  an office building located at 13A,
rue de Bitbourg, L-1273 Luxembourg, Grand Duchy  of Luxembourg, under the terms
of a lease which expires on November 16, 2003.

      Dixie National Life leases approximately 1,000  square  feet in an office
complex  located  at  855  South  Pear  Orchard  Road,  Suite  305,  Ridgeland,
Mississippi, under the terms of a lease which expires on December 31, 1998.

      Savers Life owns its Home Office building containing approximately 27,000
square  feet  at  8064  North  Point  Boulevard, Winston-Salem, North Carolina.
Savers Life occupies the top floor of its two story building and leases most of
the first floor.

ITEM 3.  LEGAL PROCEEDINGS

      John J. Quinn resigned as an officer  and director of SMC effective as of
April  15,  1997.   On June 19, 1997, Mr. Quinn  commenced  an  action  in  the
Superior  Court of Marion  County,  Indiana,  against  SMC  claiming  that  his
employment  agreement  contained  a  provision  to the effect that, following a
termination of his employment with SMC under certain  circumstances,  Mr. Quinn
would  be entitled to receive a lump sum payment equal to the amount determined
by multiplying  the number of shares of SMC Common Stock subject to unexercised
stock  options  previously  granted  by  SMC  to  Mr.  Quinn  on  the  date  of
termination, whether  or not such options were then exercisable, by the highest
per share fair market value  of  the  SMC  Common  Stock  on any day during the
six-month  period  ending  on  the  date of termination. Upon payment  of  such
amount, such unexercised stock options would be deemed to have been surrendered
and canceled. Mr. Quinn further claims  that his employment agreement contained
an additional provision that he would be entitled to receive a lump sum payment
equal  to  two  years of annual salary, following  termination  of  employment.
Mr. Quinn has asserted  to  SMC  that  he is entitled to a lump sum termination
payment  of $1,654,000, and liquidated damages  not  exceeding  $3,308,000,  by
virtue of his voluntarily leaving SMC's employment.

      SMC  disputes  Mr. Quinn's claims.  SMC filed its Answer and Counterclaim
against Mr. Quinn on September  11, 1997.  SMC's investigation since the action
was filed revealed a basis for the  termination  of  Mr. Quinn's employment for
cause relative to after-acquired evidence.  On October  14,  1997, the Board of
Directors of SMC terminated Mr. Quinn for cause effective as of March 15, 1997.
Such termination will also be argued by SMC as a complete defense to all claims
asserted by Mr. Quinn.  The ultimate outcome of the action cannot  presently be
determined.   Accordingly,  no provision for any liability that may result  has
been made in the consolidated  financial  statements.  Management believes that
the conclusion of such litigation will not  have  a  material adverse effect on
SMC's consolidated financial condition.

      In addition, SMC is involved in various legal proceedings  in  the normal
course  of  business.   In  most  cases,  such proceedings involve claims under
insurance policies or other contracts of SMC.   The  outcomes  of  these  legal
proceedings  are  not  expected  to  have  a  material  adverse  effect  on the
consolidated financial position, liquidity, or future results of operations  of
SMC based on SMC's current understanding of the relevant facts and law.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

      At the Company's Annual Meeting of Stockholders held on October 22, 1997,
the following individuals were elected to the Board of Directors:

<TABLE>
<CAPTION>
                                                       Shares For                     Shares Withheld
<S>                                              <C>                               <C>
Stephen M. Coons                                 4,154,740                         343,709
Martial R. Knieser                               4,154,845                         343,604
Paul ("Pete") B. Pheffer                         4,158,515                         339,934
</TABLE>

      The  following proposals were approved at the Company's Annual Meeting of
Stockholders:

<TABLE>
<CAPTION>
                                                                       Shares                 Shares
                                              Shares For               Against              Abstaining
<S>                                         <C>             <C>     <C>           <C>     <C>
Approve the issuance of SMC Common Stock in
connection with the acquisition by SMC of
Savers Life Insurance Company               2,990,817               107,128               11,329
Approve an amendment to SMC's Amended and
Restated 1992 Stock Option Plan to increase
the number of shares of SMC Common Stock
available for issuance pursuant thereto
from 1,500,000 to 2,500,000 and to allow
the Board of Directors of SMC to vary, from
year to year, the number of shares subject  2,303,213               739,488               65,733
to options granted to Outside Directors
Ratify the appointment of Ernst and Young
LLP as principal independent auditors for
the year ending December 31, 1997.          4,473,009               17,155                8,285
</TABLE>

      A total  of  4,498,449  shares  were present in person or by proxy at the
Annual Meeting of Stockholders.

EXECUTIVE OFFICERS

      The  following  table sets forth information  concerning  each  of  SMC's
executive officers:

<TABLE>
<CAPTION>
         NAME                                                       AGE                                      POSITION
<S>                             <C> <S>           

Ronald D. Hunter                46  Chairman of the Board, Chief Executive Officer and President
Stephen M. Coons                56  Executive Vice President, General Counsel and Secretary
Raymond J. Ohlson               47  Executive Vice President and Chief Marketing Officer
Paul B. Pheffer                 46  Executive Vice President, Chief Financial Officer and Treasurer
Edward T. Stahl                 51  Executive Vice President and Director of Corporate Development

</TABLE>
      RONALD D. HUNTER   Mr.  Hunter  has been the Chairman of the Board, Chief
Executive Officer and President of SMC since its formation in June 1989 and the
Chairman  of  the Board and Chief Executive  Officer  of  Standard  Life  since
December 1987.  Previously,  Mr.  Hunter  held  several  management  and  sales
positions  in  the life insurance industry with a number of companies including
Conseco, Inc. (1981-1986),  Aetna  Life  & Casualty Company (1978-1981), United
Home Life Insurance Company (1975-1977) and  Prudential  Life Insurance Company
(1972-1975).

      STEPHEN M. COONS  Mr. Coons has been a director of SMC since August 1989.
Mr. Coons has been General Counsel and Executive Vice President  of  SMC  since
March 1993 and has been Secretary of SMC since March 1994. He was of counsel to
the  law  firm of Coons, Maddox & Koeller from March 1993 to December 31, 1996.
Prior to March  1993,  Mr.  Coons  was  a  partner with the law firm of Coons &
Saint. He has been practicing law for 27 years.  Mr.  Coons  served  as Indiana
Securities Commissioner from 1978 to 1983.

      RAYMOND J. OHLSON  Mr. Ohlson has served as Executive Vice President  and
director of SMC since December 1993. He has served as President and director of
Standard Marketing since August 1991. Since June 1993, Mr. Ohlson has served as
President  of  Standard Life. Mr. Ohlson entered the life insurance business in
1971. While still in college, Mr. Ohlson qualified for the Million Dollar Round
Table and is now  a  life  member.  He  earned  his  CLU  designation  in 1980.
Mr.  Ohlson  owned  and  operated Ohlson & Associates, an independent insurance
marketing organization, from 1984 to April 1, 1994, when the assets of Ohlson &
Associates were acquired by Standard Marketing.

      PAUL ("PETE") B. PHEFFER   Mr. Pheffer has been Executive Vice President,
Chief Financial Officer and Treasurer  of SMC since May 1, 1997 and director of
SMC since June 27, 1997. Prior to joining  SMC,  Mr.  Pheffer  was  Senior Vice
President  --  Chief  Financial Officer and Treasurer of Jackson National  Life
Insurance Company from  1994  to  1996  and  prior  to  that  was  Senior  Vice
President  --  Chief  Financial Officer at Kemper Life Insurance Companies from
1992 to 1994. Mr. Pheffer,  a  CPA,  received  his  MBA  from the University of
Chicago in 1988.

      EDWARD T. STAHL  Mr. Stahl has been an Executive Vice  President  of  SMC
since  its formation, has been a director of SMC from July 1989 (except for the
period from  January  12,  1990  to May 21, 1990) and has served as Director of
Corporate Development since June 1993. Mr. Stahl was Secretary of SMC from June
1989 to March 1994. Mr. Stahl was  President  and  Chief  Operations Officer of
Standard  Life from May 1988 to June 1993. He has been a director  of  Standard
Life since December 1987, and Executive Vice President and Secretary since June
1993. Mr. Stahl  has  served  in  various  capacities in the insurance industry
since 1966. He earned his FLMI designation in  1981, and is a member of several
insurance associations.

<PAGE>
                                       PART II

ITEM 5.  MARKET FOR SMC COMMON STOCK AND RELATED STOCKHOLDER MATTERS

   SMC  Common Stock trades on Nasdaq under the symbol  "SMAN."  The  following
table sets  forth,  for  the  periods  indicated, the range of the high and low
sales prices of SMC Common Stock as reported  by  Nasdaq  (after adjustment for
the May 17, 1996 5% stock dividend). SMC has never paid dividends on its Common
Stock.  At  the  close  of business on March 13, 1998 there were  approximately
3,133 holders of record of the outstanding shares of SMC Common Stock. Although
SMC Common Stock is traded  on  Nasdaq,  no  assurance  can  be given as to the
future price of or the markets for SMC Common Stock.

                                                                  SMC
                                                              COMMON STOCK
                                                            HIGH         LOW

1996
      Quarter ended March 31, 1996                        $4.524      $3.571
      Quarter ended June 30, 1996                          5.250       3.690
      Quarter ended September 30, 1996                     5.500       4.000
      Quarter ended December 31, 1996                      5.375       4.000
1997
      Quarter ended March 31, 1997                         6.250       4.875
      Quarter ended June 30, 1997                          6.000       4.625
      Quarter ended September 30, 1997                     7.875       5.688
      Quarter ended December 31, 1997                      8.375       6.500


<PAGE>
ITEM 6.  SMC SELECTED HISTORICAL FINANCIAL DATA (A)
         (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

   The selected historical financial data of SMC set forth below at and for the
years  ended  December  31, 1997, 1996, 1995, 1994 and 1993 were  derived  from
audited consolidated financial  statements  of  SMC.  The  selected  historical
financial data should be read in conjunction with "Management's Discussion  and
Analysis  of  Financial  Condition  and  Results  of  Operations"  and  the SMC
Consolidated  Financial  Statements  and  related  notes thereto, each included
elsewhere herein.

<TABLE>
<CAPTION>
                                                                   Year Ended December 31,
<S>                                <C>                 <C>               <C>                <C>               <C>
                                   1997                1996              1995               1994              1993
STATEMENT OF OPERATIONS DATA:
Premium income                     $7,100              $10,468     (e)   $5,504             $4,565            $5,511
Investment Activity:
   Net investment income           29,516              20,871            18,517             16,057            12,171
   Net realized investment gains   396                 1,302             688                558               6,980
Total revenues                     46,869              40,307            30,238             26,518            26,542
Interest expense and financing     2,381               805               118                47                519
costs
Total benefits and expenses        43,607              36,772      (e)   28,682             30,032            22,099
Income (loss) before income taxes,
   extraordinary gain (charge) and
   cumulative effect of change in  3,262               3,535             1,556              (3,514)           4,443        (i)
   accounting principle
Income (loss) before extraordinary
gain
   (charge) and cumulative effect  2,645               4,265       (f)   1,313              (3,436)           2,984        (i)
   of change in accounting
   principle
Net income (loss)                  2,645               4,767       (g)   1,313              (3,436)           2,132
Operating income (loss) (b)        2,384               1,174             461                293               (1,936)
PER SHARE DATA: (C)
Income (loss) per share before
extraordinary
   gain (charge) and cumulative  
   effect of change in accounting  $.54                $.88 (f)          $.25               $(.62)            $.80 (i)
   principle
Net income (loss)                  .54 (g)             .98  (g)          .25                (.62)             .57  
Net income (loss), assuming        
dilution                           .48                 .91               .25                (.61)             .53
Operating income (loss) (b)        .48                 .24               .09                .05               (.52)
Operating income (loss), assuming                                                          
dilution (b)                       .43                 .21               .09                .05               (.48)
Weighted average common shares
   outstanding, assuming dilution  5,591,217           5,549,057         5,345,937          5,663,187         4,013,893
Book value per common share        $8.88                $7.95            $7.73              $4.27             $7.82
Book value per common share
excluding
   unrealized gain (loss) on       $     8.44   (h)    $    8.09   (h)   $    7.23   (h)    $6.81  (h)        $7.82
   securities available for sale     
Common shares outstanding          4,876,490           5,024,270         5,205,425          5,291,455         4,954,676
BALANCE SHEET DATA (at year end):
Invested assets                    $398,782            $370,138          $280,597           $224,926          $199,413
Assets held in separate accounts   148,064             128,546           122,705            94,301            107,173
Total assets                       668,992             628,413           479,598            373,524           354,431
Long-term debt, notes payable and
capital                            26,141              20,697            4,191              695               --
   lease obligations
Class S Preferred Stock            --                  1,757             --                 --                 --
Shareholders' equity               43,313              39,919            40,242             22,610            36,914
Shareholders' equity, excluding
unrealized gain                    41,142              40,665            37,660             36,021            36,918
   (loss) on securities available
   for sale
Ratio of debt to total             38%                 36%               9%                 3%                --
capitalization (d)
</TABLE>
<PAGE>
                NOTES TO SMC SELECTED HISTORICAL FINANCIAL DATA
               (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


(a)Comparison of consolidated financial information  is  significantly affected
   by   the   acquisitions  of  Standard  Management  International   effective
   December 31,  1993,  Dixie  National Life on October 2, 1995 and Shelby Life
   effective November 1, 1996 and  disposal  of  First  International effective
   March 1, 1996. Refer to the notes to the consolidated  financial  statements
   included  in  SMC's  Audited  Consolidated  Financial  Statements,  included
   elsewhere herein, for a description of business combinations.

(b)Operating  income  represents  income  before  extraordinary gains (charge),
   excluding net realized investment gains (less income  taxes relating to such
   gains),  gain  on  disposal  of subsidiary and class action  litigation  and
   settlements.

(c)All applicable shares and per  share  amounts  have been adjusted to reflect
   the  adoption of Statement of Financial Accounting  Standards  ("SFAS")  No.
   128, "Earning  Per  Share"  on December 31, 1997.  Refer to the notes to the
   consolidated financial statements  included  in  SMC's  Audited Consolidated
   Financial  Statements,  included  elsewhere  herein,  for  a description  of
   earnings per share.

(d)Total  capitalization  is  the  sum  of  SMC's  debt (long term debt,  notes
   payable,  capital  lease  obligations and redeemable  preferred  stock)  and
   shareholders' equity.

(e)Includes recapture of premiums  ceded  and an increase in benefits due to an
   increase in reserves of $4,234 due to the  termination  and  recapture  of a
   reinsurance  agreement  with  National  Mutual  Life  Insurance Company. See
   "Business of SMC -- Reinsurance."

(f)Does  not  reflect  extraordinary  gain  of $502 ($.10 per share)  on  early
   redemption of Class S Preferred Stock for 1996.

(g)Does not reflect preferred stock dividends  of $97 ($.01 per share) and $208
   ($.04  per  share) for 1997 and 1996, respectively,  on  Class  S  Preferred
   Stock.

(h)Excludes the effect of reporting securities available for sale at fair value
   and recording  the unrealized gain or loss on such securities as a component
   of shareholders'  equity,  net of tax and other adjustments, which SMC began
   to  do  in 1994. Such adjustments  are  in  accordance  with  SFAS  No.  115
   "Accounting  for  Certain  Investments  in  Debt  and Equity Securities", as
   described in the notes to the consolidated financial  statements included in
   SMC's Consolidated Financial Statements, included elsewhere herein.

(i)Before deduction of extraordinary charge of $1,301 ($.32 per share) on early
   extinguishment  of  long-term  debt  and  cumulative  effect  of  change  in
   accounting principle of $449 ($.11 per share) from applying  the  new method
   of accounting for income taxes.



<PAGE>
ITEM 7.  MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF  FINANCIAL  CONDITION  AND
         RESULTS OF OPERATIONS

   The  following  discussion  highlights  the  principal factors affecting the
results of operations and the significant changes in balance sheet items of SMC
on a consolidated basis for the periods listed as  well  as SMC's liquidity and
capital resources. This discussion should be read in conjunction  with  the SMC
Consolidated  Financial  Statements  and  the Notes thereto appearing elsewhere
herein.

INTRODUCTION

   SMC acquired Standard Management International  on  December 15, 1993, Dixie
National Life on October 2, 1995, Shelby Life on November  8,  1996  and Savers
Life on March 12, 1998. These acquisitions are accounted for using the purchase
method  of  accounting (effective December 31, 1993 for the Standard Management
International  acquisition,  October  2,  1995  for  the  Dixie  National  Life
acquisition,  November  1,  1996  for the Shelby Life acquisition, and March 1,
1998  for  the  Savers Life acquisition).  Therefore,  these  subsidiaries  are
included in the SMC  Consolidated  Financial  Statements  commencing with their
respective acquisition effective dates.  SMC disposed of First International on
March  18,  1996  (effective  March 1, 1996) and terminated the  operations  of
Standard Reinsurance on March 1, 1996.

   PRODUCT PROFITABILITY.  Margins  on  life insurance and annuity products are
affected by interest rate fluctuations. Rising interest rates would result in a
decline in the market value of assets. However,  as  there  are  positive  cash
flows  from  renewal  premiums,  investment  income  and maturities of existing
assets, the need for early disposition of investment assets  to  meet operating
cash  flow  requirements  would  be unlikely. Rising interest rates would  also
result  in  available  cash flows from  maturities  being  invested  at  higher
interest rates, which would help support a gradual increase in new business and
renewal interest rates on  interest-sensitive products. A sharp, sudden rise in
the interest rate environment  without a concurrent increase in crediting rates
could result in higher surrenders,  particularly  for  annuities. The effect of
surrenders  would  be to reduce earnings over the long term.  Earnings  in  the
period  of the surrender  could  increase  or  decrease  depending  on  whether
surrender  charges  were  applicable and whether such changes differed from the
write-off of related deferred  acquisition  costs  or  present  value of future
profits.

   When  interest  rates  fall,  SMC generally attempts to adjust the  credited
interest rates subject to competitive  pressures.  Although  SMC  believes that
such  strategies  will  continue  to permit it to achieve a positive spread,  a
significant decline in the yield on  SMC's  investments  could adversely affect
the results of operations and financial condition of SMC.

   PURCHASED  INSURANCE BUSINESS.  In accordance with industry  practice,  when
SMC purchases additional  insurance  businesses  it  assigns  a  portion of the
purchase  price,  called the present value of future profits, to the  right  to
receive future cash  flows arising from existing insurance policies. This asset
is recorded when the business  is  purchased  at  the value of projected future
cash flows on existing policies, less a discount to  present  value.  As future
cash flows emerge, they are treated as a recovery of this asset. Therefore,  if
cash  flows  emerging from the purchased or recaptured business during a period
exactly equal the projections, they are offset by that period's amortization of
the cost of the  policies  purchased.  In that event, the only income statement
effect from the purchased business is the  realization of the discount that was
initially deducted from the asset to reflect  its present value. Changes in the
future annual amortization of this asset are not expected to have a significant
effect  on the results of operations, because the  amount  of  amortization  is
expected  to  be equal to the profits emerging from the purchased policies, net
of interest on  the  unrecovered  present value of future profits balance. This
asset is amortized over the expected  life  of  the related policies purchased.
Present  value  of  future profits is increased for  the  estimated  effect  of
realizing unrealized  investment  losses and decreased for the estimated effect
of realizing unrealized investment gains.

   In selecting the interest rate to  calculate the discounted present value of
the projected future profits, SMC used the risk rate of return it needs to earn
in order to invest in the business being acquired or recaptured.

   In determining this required rate of  return,  SMC  considers  the following
factors:

   <circle>The  magnitude  of  the  risks associated with each of the actuarial
         assumptions  used  in  determining  expected  future  cash  flows  (as
         described above).

   <circle>Our  cost  of  the capital  required  to  fund  the  acquisition  or
         recapture.

   <circle>The likelihood of  changes in projected future cash flows that might
         occur if there are changes in insurance regulations and tax laws.

   <circle>The acquired company's  compatibility with other SMC activities that
         may favorably affect future cash flows.

   <circle>The complexity of the acquired company or recaptured business.

   <circle>Recent prices (i.e., discount  rates used in determining valuations)
         paid by others to acquire or recapture similar blocks of business.

   The  discount rate used to determine the  present  value  of  the  projected
future profits  is used to determine the subsequent amortization of the cost of
the purchased policies  for  acquisitions  prior  to  November  19,  1992.  For
acquisitions  subsequent  to  November  19,  1992,  the  discount  rate used to
amortize the unamortized balance of the present value of future profits  is the
crediting rate of the underlying policies.

   The discount rate selected may affect subsequent earnings in those instances
where  the  purchase  price  of  the  policies  exceeds the value of net assets
acquired  (including  the value of future profits discounted  at  the  selected
interest rate). Selection  of  a  lower (or higher) discount rate will increase
(or decrease) the portion of the purchase  price  assigned to the present value
of future cash flows and will result in an offsetting decrease (or increase) in
the amount of the purchase price assigned to goodwill. The effect on subsequent
earnings caused by this variation in purchase price  allocation  will depend on
the characteristics of the policies purchased. For products where  the  profits
emerge  at  relatively  constant  levels  over  an extended period of time (for
example, most of SMC's immediate and deferred annuities),  use  of a lower rate
may  result  in  an increase in reported earnings in the early years  after  an
acquisition followed  by  a  decrease  in earnings in later years. For products
where profits emerge over a shorter period  of time or in amounts that decrease
over the life of the product (for example, ordinary  and  term  life products),
selection  of  a  lower  rate  will generally result in a decrease in  reported
earnings in the early years after  an  acquisition  followed  by an increase in
reported earnings in later years. For SMC, the majority of the cost of policies
purchased relates to ordinary life products and the balance to deferred annuity
products.

   The activity related to the present value of future profits  of the business
acquired or recaptured is summarized as follows (in thousands):
                                                        YEAR ENDED DECEMBER 31,

<TABLE>
<CAPTION>
                                                  1997         1996          1995
<S>                                              <C>         <C>          <C>


Balance, beginning of year                       $23,806     $ 15,246     $  8,299
   Amounts related to acquisitions and disposals  (1,374)       9,615        7,901
   Net amortization during the year               (1,666)      (1,249)        (780)
   Adjustments relating to net unrealized (gain)
      losses on securities available for sale       (229)         194         (174)
Balance, end of year...........................  $20,537     $ 23,806      $15,246

</TABLE>
   The percentage of future expected net amortization of the beginning  balance
of  the  present  value  of  future profits before the effect of net unrealized
gains and losses, based on the  present value of future profits at December 31,
1997 and current assumptions as to future events on all policies in force, will
be between 6% and 8% in each of the years 1998 through 2002.

   The discount rate used to calculate  the present value of future profits for
business acquired prior to November 19, 1992,  reflected  in SMC's December 31,
1997  consolidated  balance  sheet  ranged  from 7.5% to 18%. SMC  used  a  15%
discount rate to calculate the present value  of future profits on the business
of the Dixie National Life acquisition, which is  being amortized over 30 years
as the majority of the present value of future profits related primarily to the
ordinary life business. SMC used a 15% discount rate  to  calculate the present
value of future profits on the business of the Shelby Life  acquisition,  which
is  being amortized over 20 years based on the mix of annuity and life business
in Shelby Life.

   PRODUCED  INSURANCE  BUSINESS.   Insurance  products  generate  two types of
profit  streams:  (i)  from  the  excess of investment income earned over  that
credited to the policyholder and (ii) from the excess of premiums received over
costs  incurred  for  policy  issuance,  administration  and  mortality.  Costs
incurred  in  issuing  new policies  are  deferred  and  recorded  as  deferred
acquisition costs ("DAC"),  which  are amortized using present value techniques
so  that profits are realized in proportion  to  premium  revenue  for  certain
products  and  estimated gross profits for certain other products. Profits from
all of these elements are recognized over the lives of the policies; no profits
are recorded at the time the policies are issued.

<PAGE>
   Amortization  of DAC was $1,456,000, $1,221,000 and $1,142,000 for the years
ended December 31,  1997,  1996 and 1995, respectively. The increase in current
year amortization expense resulted primarily from increased amortization of DAC
as gross profits from business  sold  in  recent  years began to emerge. DAC of
$18,309,000 at December 31, 1996 and additions to policy  acquisition  costs of
$7,005,000  for  business produced during the year ended December 31, 1997  are
generally being amortized  over the expected lives of the policies, a period of
approximately 20 years, in a  constant  relationship  to  the  present value of
estimated  future gross profits. Interest is being accreted at 7%  during  year
one and 5% thereafter,  the  projected  crediting  rate on the policies. DAC is
increased  for the estimated effect of realizing unrealized  investment  losses
and decreased  for  the  estimated  effect  of  realizing unrealized investment
gains.  The  offset  to  these  amounts is recorded directly  to  shareholders'
equity, net of taxes. Future expected  amortization  of  DAC  for the next five
years before the effect of net realized and unrealized gains and  losses, based
on  DAC  at  December  31,  1997  and  current  assumptions, is as follows  (in
thousands):

<TABLE>
<CAPTION>
                                 1998       1999        2000       2001       2002
<S>                            <C>        <C>         <C>        <C>        <C>

Gross amortization             $2,945     $2,976      $3,068     $2,858     $2,597
Interest accreted               1,079        906         736        604        483
Net amortization               $1,866     $2,070      $2,332     $2,254     $2,114

</TABLE>
      The  amounts  included  in  the  foregoing  table   do  not  include  any
amortization of DAC resulting from the sale of new products  after December 31,
1997. Any changes in future annual amortization of this asset  are not expected
to  have  a significant effect on results of operations because the  amount  of
amortization  is  expected to be proportionate to the profits from the produced
policies, net of interest on DAC.

      VARIANCES BETWEEN  ACTUAL  AND  EXPECTED  PROFITS.   Actual experience on
purchased and produced insurance may vary from projections due  to  differences
in  renewal  premiums collected, investment spreads, mortality costs, surrender
benefits, persistency,  administrative  costs and other factors. Variances from
original projections, whether positive or  negative, are included in net income
as  they  occur.  To  the  extent  that these variances  indicate  that  future
experience  will  differ  from  the  estimated   profits   reflected   in   the
capitalization  and  amortization of the cost of policies purchased or the cost
of policies produced, current and future amortization rates may be adjusted.

      ACCOUNTING  FOR  ANNUITIES  AND  UNIVERSAL  AND  INTEREST-SENSITIVE  LIFE
PRODUCTS.  The Company primarily  accounts  for  its  annuity and universal and
interest-sensitive  life  policy  deposits  in  accordance  with  Statement  of
Financial  Accounting  Standards  No.  97  ("SFAS  No.  97").  "Accounting  and
Reporting by Insurance Enterprises for Certain Long-Duration Contracts  and for
Realized  Gains  and  Losses on the Sale of Investments". Under SFAS No. 97,  a
benefit reserve is established  at  the  time  of  policy issuance in an amount
equal to the deposits received. Thereafter, the benefit reserve is adjusted for
any additional deposits, interest credited and partial or complete withdrawals.
Revenues  for  annuities  and universal and interest-sensitive  life  policies,
other than certain non-interest  sensitive annuities, consist of policy charges
for  surrenders  and partial withdrawals,  mortality  and  administration,  and
investment income  earned.  Such  revenues  do  not  include  the  annuity  and
universal  and  interest-sensitive  life  policy  deposits. Expenses related to
these  products  include  interest  credited to policyowner  account  balances,
operating costs for policy administration,  amortization  of  DAC and mortality
costs in excess of account balances.

      Costs relating to the acquisition of new business, primarily  commissions
paid  to agents, which vary with and are directly related to the production  of
new business,  are  deferred to the extent that such costs are recoverable from
future profit margins.  At  the  time  of  issuance,  the acquisition expenses,
approximately 13% of initial annuity premium deposits and  50% of premiums from
universal and interest-sensitive life products for SMC, are capitalized as DAC.
In accordance with SFAS No. 97, DAC with interest is amortized  over  the lives
of  the  policies  in a constant relationship to the present value of estimated
future gross profits.

      UNIT-LINKED PRODUCT  ACCOUNTING.  Separate account assets and liabilities
are  maintained  primarily for  contracts  of  which  the  majority  represents
unit-linked  products   where  benefits  on  surrender  and  maturity  are  not
guaranteed. They generally  represent  funds  held in accounts to meet specific
investment objectives of policyholders who bear the investment risk. Investment
income and investment gains and losses accrue directly  to  such policyholders.
SMC  earns  income  from  the  investment  management  fee it charges  on  such
unit-linked  contracts,  which  range  from  .8% to 1.2% of the  value  of  the
underlying separate accounts.

<PAGE>
DISCUSSION OF CHANGES IN THE CONSOLIDATED STATEMENT OF OPERATIONS FROM YEAR
ENDED DECEMBER 31, 1997 TO YEAR ENDED DECEMBER 31, 1996

      OPERATING  INCOME.   The  income  from operations  (before  net  realized
investment gains and gain on disposal of  subsidiaries) was $2,384,000 in 1997,
or $.48 per share, compared to $1,174,000 for  1996,  or  $.24  per  share. The
increase  resulted  primarily  from  operations  in the United States producing
income from operations of $664,000 for 1997 compared  to  a loss of $44,000 for
1996.  The increase is primarily due to an increase in interest  spreads  on an
increasing asset base.  The income from international operations also increased
to  $1,720,000  for  1997  compared  to $1,218,000 for 1996.  The international
operating income resulted primarily from  increased  fees  from  an increase in
value  of  assets  under  separate  accounts  and  deceased operating expenses,
primarily due to the strengthening of the U.S. dollar.

      PREMIUM INCOME.  GAAP premium income for 1997  was $7,100,000, a decrease
of $3,368,000 or 32% from 10,468,000 for 1996. This decrease is attributable to
the recapture of premiums ceded of $4,234,000 in 1996  due  to  the termination
and recapture of a reinsurance agreement with National Mutual which  offset the
increase  in premium income for the inclusion of Shelby Life in the results  of
operations  for  periods  after  November  1,  1996.   The Shelby Life block of
business recorded net premium income of $1,685,000 in 1997.

      Net premiums received from the sales of interest-sensitive  annuities and
other financial products (which are not recorded as revenues) were  $49,362,000
compared  to  $42,347,000  for  1997  and  1996, respectively. The increase  in
premium  deposits is partially due to an increase  in  gross  domestic  premium
deposits.  Gross  domestic  premium  deposits  received from interest-sensitive
annuities  and  financial  products  were  $58,069,000  for  1997  compared  to
$51,254,000 for 1996. The increase in gross  domestic  premium is the result of
an aggressive marketing campaign targeted to high volume  marketing  companies.
Also  contributing to the increase in premiums is the continued development  of
SMC's distribution system through marketing support from Standard Marketing, an
aggressive  program  aimed  at retaining key producers,  and an increase in the
agency base achieved by expanding geographical concentration into the Mid-South
and California. Since SMC's operating  income  is  primarily  a function of its
investment   spreads,  persistency  of  annuity  in  force  business  mortality
experience and  operating  expenses,  a  change in premium deposits in a single
period does not directly cause operating income  to  change, although continued
increases or decreases in premiums may affect the growth  rate  of total assets
on which investment spreads are earned.

      NET INVESTMENT INCOME.  Net investment income increased $8,645,000 or 41%
to  $29,516,000 for 1997 from $20,871,000 for 1996. The increase resulted  from
an increase in total invested assets (amortized cost) of approximately 42% from
December  31,  1995  to December 31, 1997, most of which occurred in the fourth
quarter of 1996 due to  the  acquisition of Shelby Life, and an increase in the
weighted average net yield of SMC's investment portfolio (exclusive of realized
and unrealized gains) to 7.68%  from 7.32% for 1997 and 1996, respectively. The
continued growth in SMC's total invested  assets  reflects  increased  sales of
FPDAs  and the inclusion of the invested assets of Shelby Life of approximately
$100,000,000 in the consolidated balance sheet effective November 1, 1996.

      NET  REALIZED  INVESTMENT GAINS.  Net realized investment gains decreased
$906,000 or 70% to $396,000  from  $1,302,000  for 1997 and 1996, respectively.
Net realized investment gains fluctuate from period  to  period  and arise when
securities are sold in response to changes in the investment environment  which
provide  opportunities  to  maximize return on the investment portfolio without
adversely affecting the quality and overall yield of the investment portfolio.

      The pretax net unrealized  gain on the Company's fixed maturity portfolio
was $5,201,000 at December 31, 1997, compared to a pretax net unrealized (loss)
of $(1,837,000) at December 31, 1996.  In the absence of continued decreases in
interest rates the Company may be  unable  to  realize  gains on its investment
portfolio at the levels of prior years or could recognize  losses from sales of
securities prior to maturity.  The Company's future earnings could be adversely
affected  to  the  extent  it  is  unable  to  realize gains on its  investment
portfolio.

      GAIN ON DISPOSAL OF SUBSIDIARIES.  On March  18,  1996, SMC completed the
sale of a duplicate charter associated with First International  to  GIAC.  SMC
received sale proceeds of $10,393,000, including $1,500,000 for the charter and
licenses  associated  with  First  International.  Standard Life realized a net
pre-tax  gain  of  $1,042,000 on this sale. In addition,  First  International,
Standard Life and GIAC  have  entered  into a series of agreements that include
provisions for Standard Life to retain the  economic  interest in certain First
International policies and administer First International  policies in force at
the date of such sale.

      In  an  unrelated matter, SMC decided in February 1996 to  terminate  the
reinsurance agreement  between  Standard Reinsurance and Salamandra, and not to
renew the Barbados license of Standard  Reinsurance.  This  resulted  in a 1996
write-off  of  SMC's  investment in Standard Reinsurance and certain intangible
assets of Standard Reinsurance amounting to $156,000.

      The  combined  effect   of   the  pre-tax  gain  on  the  sale  of  First
International and related contracts,  and  the Standard Reinsurance write-offs,
was $886,000 pre-tax and $2,306,000 after tax in 1996.

      POLICY CHARGES.  Policy charges, which  represent  the  amounts  assessed
against  policyholder  account  balances  for  the  cost  of  insurance, policy
administration and surrenders, increased $2,961,000 or 116% to  $5,512,000  for
1997  compared  to $2,551,000 for 1996. The increase in policy charges resulted
from an increase in policy charges for Standard Life's universal life insurance
products of $1,790,000  due  to  the inclusion of Shelby Life in the results of
operations for periods after November  1,  1996,  and  an  increase  in  policy
surrender  charges  on  FPDAs  of  $693,000.   The  increase  in annuity policy
withdrawals  and  surrender  charges  on  flexible  premium deferred  annuities
generally  corresponds  to the aging and growth of SMC's  annuity  business  in
force.

      FEES FROM SEPARATE  ACCOUNTS.   Fees  from  separate  accounts  increased
$215,000  or 14% to $1,779,000 for 1997 from $1,564,000 for 1996. This increase
is due primarily  to  an  increase  in  the  value  of  assets held in separate
accounts from $122,705,000 at December 31, 1995 to $148,064,000 at December 31,
1997.  Net deposits from sales of unit-linked products by  Standard  Management
International were $21,954,000 and $16,902,000 for 1997 and 1996, respectively.
Such income fluctuates in relationship to total separate account assets and the
return earned on such assets.

      BENEFITS  AND  CLAIMS.   Benefits  and claims decreased $821,000 or 8% to
$9,098,000 for 1997 from $9,919,000 for 1996.  The  decrease  in  benefits  and
claims in 1997 resulted primarily from an increase in change in policy reserves
of  $4,234,000  in  1996  related  to  the  termination  and  recapture  of the
reinsurance  agreement  with National Mutual. This decrease offset the increase
in benefits and claims from  adverse  mortality experience and the inclusion of
Shelby Life (approximately $1,152,000 in 1997) in the results of operations for
periods after November 1, 1996.  Throughout  SMC's  history, it has experienced
both periods of higher and lower benefits and claims.  Such  volatility  is not
uncommon  in  the  life  insurance industry and, over extended periods of time,
periods of higher claims experience  tend  to  be  offset  by  periods of lower
claims experience.

      INTEREST  CREDITED  ON  INTEREST SENSITIVE ANNUITIES AND OTHER  FINANCIAL
PRODUCTS.   Interest  credited  on   interest  sensitive  annuities  and  other
financial products was $16,281,000 for  1997,  an increase of $5,189,000 or 47%
from $11,092,000 for 1996. The increase resulted from the inclusion of interest
credited  of  $3,740,000  from  Shelby  Life products,  increases  in  interest
credited rates on new annuity sales and the  increases  in the growth in policy
reserves  for  FPDAs  from sales.  At December 31, 1997, the  weighted  average
interest credited rate  for  Standard  Life's  currently marketed annuities and
other financial product liabilities was 5.58% compared to 5.27% at December 31,
1996.

      SALARIES  AND WAGES.  Salaries and wages were  $5,608,000  for  1997,  an
increase of $555,000 or 11% from $5,053,000 for 1996.  This increase was caused
primarily by an increase  in  the  average  wages  per  employee in 1997 and an
increase  in  the  number  of employees from 84 at January 1,  1996  to  92  at
December 31, 1997.

      AMORTIZATION.   Amortization   expense   increased  $656,000  or  25%  to
$3,248,000  for 1997 from $2,592,000 for 1996. The  increase  in  current  year
amortization  expense resulted primarily from the amortization of present value
of future profits of $555,000 in 1997 for the acquisition of Shelby Life.

      OTHER OPERATING EXPENSES.  Other operating expenses decreased $320,000 or
4% to $6,991,000  for  1997  from  $7,311,000  for 1996.  The decrease in other
operating expenses resulted primarily from eliminating  in  1997 the additional
cost  to  convert  the  operations  and  expand the marketing effort  in  Dixie
National  Life  incurred  in 1996 and a reduction  in  international  operating
expenses due to the strengthening of the U.S. dollar.

      INTEREST EXPENSE AND  FINANCING  COSTS.   Interest  expense and financing
costs  increased  $1,576,000 or 196% to $2,381,000 for 1997 from  $805,000  for
1996. The increase in interest expense and financing costs during 1997 resulted
primarily from increased  borrowing  of  $10,100,000  in  November  1996 on the
Amended  Credit  Agreement  and  borrowings  of $4,000,000 from an unaffiliated
insurance  company  in  connection  with the acquisition  of  Shelby  Life  and
additional  borrowings  of  $5,600,000  in   connection  with  funding  capital
contributions to an insurance subsidiary and redemption  of  Class  S Preferred
Stock in 1997.

      FEDERAL  INCOME TAXES.  Federal income tax expense (credit) was  $617,000
for 1997, compared  to  $(730,000)  for  1996.  The  large  credit  in  1996 is
primarily  due  to  tax  benefits  of  $1,420,000  related to the sale of First
International.

      EXTRAORDINARY  GAIN  ON EARLY REDEMPTION OF REDEEMABLE  PREFERRED  STOCK.
Extraordinary gains were recorded  on  the  early  redemption  of  the  Class S
Preferred  Stock for the amounts by which the repurchase price for the Class  S
Preferred Stock  was  below  its  book value plus accrued and unpaid dividends.
SMC recorded no extraordinary gain  for  1997  compared  to a $502,000 gain for
1996.  Effective August 1, 1997, SMC redeemed all of its issued and outstanding
Class  S  Preferred  Stock  at  redemption  value  of  $10.00  per  share  plus
accumulated and unpaid dividends.


<PAGE>
DISCUSSION OF CHANGES IN THE CONSOLIDATED STATEMENT OF OPERATIONS FROM
YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995

      OPERATING  INCOME.   The  income  from  operations  (before net  realized
investment gains and gain on disposal of subsidiaries), was $1,174,000 in 1996,
or $.24 per share, compared to $461,000 for 1995, or $.09 per share. The change
resulted  primarily  from  international  operations  producing   income   from
operations  of  $1,218,000  compared  a loss of to $(22,000) for 1996 and 1995,
respectively.  The  international  operating   gains  resulted  primarily  from
increased  management  fees  on  an increasing separate  account  base  due  to
portfolio  sales  in  1996  and 1995,  and  increased  value  of  assets  under
management, coupled with a decrease in marketing costs in 1996 when compared to
1995. The income (loss) from  operations  in  the  United  States  decreased to
$(44,000) in 1996 compared to $483,000 in 1995. The decline was attributable to
an  increase  in  interest expense from borrowings to repurchase Common  Stock,
Class S Preferred Stock and the purchase of Shelby Life and additional costs to
convert the operations and expand the marketing effort in Dixie National Life.

      PREMIUM INCOME.   GAAP  premium  income  for the 1996 was $10,468,000, an
increase of $4,964,000 or 90% from $5,504,000 for 1995. This increase is mainly
attributable  to  recapture  of  premiums  ceded  of  $4,234,000   due  to  the
termination  and recapture of a reinsurance agreement with National Mutual  and
the inclusion  of  Dixie  National  Life  and  Shelby  Life  in  the results of
operations   for   periods   after  October  2,  1995  and  November  1,  1996,
respectively. These amounts offset  the decline in premiums from the cession of
a portion of First International's life  insurance  business  and  the  regular
policy lapses, surrenders and expiries in SMC's closed blocks of business.

      Net premiums received from the sales of interest-sensitive annuities  and
other  financial products (which are not recorded as revenues) were $42,347,000
compared  to  $17,524,000  for  1996  and  1995,  respectively. The increase in
premium  deposits  is partially due to an increase in  gross  domestic  premium
deposits. Gross domestic  premium  deposits  received  from  interest-sensitive
annuities  and  financial  products  were  $51,254,000  for  1996  compared  to
$37,614,000  for  1995.  The  increase is the result of an aggressive marketing
campaign implemented by Standard  Life with increased crediting interest rates.
First year interest crediting rates  were increased approximately 1% on certain
FPDAs sold after April 1, 1995. Also contributing  to  the increase in premiums
is  the  continued development of SMC's distribution system  through  marketing
support from  Standard  Marketing  and  an increase in the agency base achieved
through  the  recruitment of larger managing  general  agencies  and  expanding
geographical concentration into the Mid-South and California.

      SMC also  decreased the quota-share portion of business ceded pursuant to
a reinsurance agreement from 70% to 50% at September 1, 1995, which was further
decreased to 25%  effective  April  1, 1995. Premium deposits ceded pursuant to
this reinsurance agreement reduced net  premium  deposits by $8,907,000 in 1996
compared to $20,090,000 in 1995.

      NET INVESTMENT INCOME.  Net investment income increased $2,354,000 or 13%
to  $20,871,000  for  1996 from $18,517,000 for 1995.  The  increase  primarily
resulted  from  an increase  in  total  invested  assets  (amortized  cost)  of
approximately 32%  from  1995  to  1996,  most  of which occurred in the fourth
quarter due to the acquisition of Shelby Life. The  weighted  average net yield
on SMC's invested assets was 7.32% for both 1996 and 1995. The continued growth
in  SMC's  total  invested  assets  reflects increased sales of FPDAs  and  the
inclusion  of  the  invested assets of Dixie  National  Life  of  approximately
$26,400,000 and Shelby  Life  of approximately $100,000,000 in the consolidated
balance sheet effective October  2,  1995  and  November 1, 1996, respectively,
which  was  offset  by  the  invested  assets  ceded in  the  GIAC  reinsurance
transaction of approximately $18,000,000.

      NET REALIZED INVESTMENT GAINS.  Net realized  investment  gains increased
$614,000  or  89%  to $1,302,000 from $688,000 for 1996 and 1995, respectively.
The increase primarily  resulted  from  active portfolio management by SMC. Net
realized  investment gains fluctuate from  period  to  period  and  arise  when
securities  are sold in response to changes in the investment environment which
provide opportunities  to  maximize  return on the investment portfolio without
adversely affecting the quality and overall yield of the investment portfolio.

      POLICY CHARGES.  Policy charges increased $84,000 or 3% to $2,551,000 for
1996 compared to $2,467,000 for 1995.  The  increase in policy charges resulted
from an increase in policy surrender charges  on  FPDAs  of  $254,000  and  the
inclusion  of  Dixie  National  Life  and  Shelby Life in operating results for
periods  after  October  2, 1995 and November 1,  1996,  respectively,  for  an
increase of $1,359,000 which offset a decrease of $1,502,000 for the absence of
policy charges from SMC's  closed  blocks of universal life business which were
sold to GIAC through a reinsurance contract effective January 1, 1995.

      FEES  FROM SEPARATE ACCOUNTS.   Fees  from  separate  accounts  increased
$270,000 or 21%  to $1,564,000 for 1996 from $1,294,000 for 1995. This increase
is due primarily to  an  increase  in  the  value  of  assets  held in separate
accounts from $94,301,000 at December 31, 1994 to $128,546,000 at  December 31,
1996  and  to  higher  service  fees being levied on certain transactions.  Net
deposits   from  sales  of  unit-linked   products   by   Standard   Management
International were $16,902,000 and $31,793,000 for 1996 and 1995, respectively.
Such income fluctuates in relationship to total separate account assets and the
return earned on such assets.

      OTHER  INCOME.  Other income increased $897,000 or 236% to $1,277,000 for
1996 compared  to  $380,000  for  1995.  The  increase  resulted primarily from
administration  fees  of  $316,000  and  the  reserve  and  experience   refund
adjustments   in  connection  with  the  agreements  with  GIAC  and  increased
commissions received  by  Standard  Marketing  from  the  sale  of unaffiliated
products.

      BENEFITS AND CLAIMS.  Benefits and claims increased $4,128,000  or 71% to
$9,919,000  for  1996 from $5,791,000 for 1995. The increase resulted primarily
from an increase in  reserves  of  $4,234,000  related  to  the termination and
recapture  of  a  reinsurance agreement with National Mutual. Throughout  SMC's
history, it has experienced  both  periods  of higher and lower benefit claims.
Such  volatility  is  not  uncommon in the life insurance  industry  and,  over
extended periods of time, periods of higher claims experience tend to be offset
by periods of lower claims experience.

      INTEREST CREDITED ON INTEREST  SENSITIVE  ANNUITIES  AND  OTHER FINANCIAL
PRODUCTS.   Interest  credited  on  interest  sensitive  annuities  and   other
financial  products  was $11,092,000 for 1996, an increase of $1,083,000 or 11%
from $10,009,000 for 1995.  The increase resulted primarily from SMC's increase
of credited interest rates on new annuity sales and the increases in the growth
in policy reserves for FPDAs from sales and the inclusion of Shelby Life in the
operations results effective  November  1,  1996.  At  December  31,  1996, the
weighted average interest credited rate for Standard Life's annuities and other
financial product liabilities was 5.27% compared to 5.35% at December 31, 1995.

      SALARIES  AND  WAGES.   Salaries  and wages were $5,053,000 for 1996,  an
increase of $352,000 or 7% from $4,701,000  for 1995.  This increase was caused
primarily by an increase in incentive compensation expense of $315,000.

      AMORTIZATION.   Amortization  expense  increased   $548,000   or  27%  to
$2,592,000  for  1996  from  $2,044,000 for 1995. The increase in current  year
amortization expense resulted primarily from increased amortization of deferred
acquisition costs as gross profits  from business sold in recent years began to
emerge  and  increased  surrenders  and their  corresponding  increase  in  the
amortization of deferred acquisition  costs,  and  from an increase of $602,000
for the amortization of present value of future profits for the acquisitions of
Dixie National Life, Shelby Life and National Mutual.  These  items  more  than
offset  reduced  amortization  of  excess  of  cost over net assets acquired of
$46,000 and present value of future profits of $120,000  due  to  the  sale  of
First International.

      OTHER  OPERATING EXPENSES.  Other operating expenses increased $1,292,000
or 21% to $7,311,000  for  1996 from $6,019,000 for 1995. The increase in other
operating expenses resulted  primarily from the expenses of Dixie National Life
and Shelby Life included in the  results  for the periods after October 2, 1995
and  November  1,  1996, respectively and the  increased  expenses  related  to
potential acquisitions and advisory fees.

      INTEREST EXPENSE  AND  FINANCING  COSTS.   Interest expense and financing
costs increased $687,000 or 582% to $805,000 for 1996  from  $118,000 for 1995.
The  increase  in  interest  expense  and financing costs during 1996  resulted
primarily from the borrowing on the Amended  Credit  Agreement.  The  borrowing
under  the Amended Credit Agreement and the original credit agreement primarily
occurred  after  December 31, 1995 in connection with the acquisition of Shelby
Life and the repurchase of Common Stock and Class S Preferred Stock.

LIQUIDITY AND CAPITAL RESOURCES

      Standard  Management   is  a  financial  services  holding  company.  The
liquidity requirements of Standard Management are met primarily from management
fees, equipment rental fees and  payments  for  other charges and dividends and
interest on Surplus Debentures received from Standard Management's subsidiaries
as  well  as  Standard  Management's  working  capital.   These   are  Standard
Management's  primary source of funds to pay operating expenses and  meet  debt
service  obligations.   The  payment  of  dividends  and  interest  on  Surplus
Debentures  and  management  and  other  fees  by  Standard  Life  to  Standard
Management is subject  to  restrictions  under  the  insurance laws of Indiana,
Standard Life's jurisdiction of domicile. These internal  sources  of liquidity
have been supplemented in the past by external sources such as lines  of credit
and revolving credit agreements and long-term debt and equity financing  in the
capital markets.

      SMC reported on a consolidated GAAP basis net cash provided by operations
of $7,764,000 and $1,726,000 for 1997 and 1996, respectively. Although deposits
received on SMC's interest-sensitive annuities and other financial products are
not  included in cash flow from operations under GAAP, such funds are available
for use  by  SMC.  Cash provided by operations plus net deposits received, less
net account balances  returned to policyholders on interest sensitive annuities
and other financial products, resulted in positive cash flow of $19,649,000 and
$26,717,000 for 1997 and  1996,  respectively. Cash generated on a consolidated
basis  is available to Standard Management  only  to  the  extent  that  it  is
generated  at  Standard Management level or is available to Standard Management
through  dividends,   interest,   management   fees   or  other  payments  from
subsidiaries.

      In April 1993, Standard Management instituted a program to repurchase SMC
Common Stock from time to time. The purpose of the stock  repurchase program is
to  enhance  shareholder  value. Standard Management had repurchased  1,134,356
shares of SMC Common Stock  for  $5,826,000  as  of  January  1,  1998.  Of the
repurchases,  419,026 shares were paid for through additional borrowings  under
the Amended Credit Agreement, 39,016 shares from the proceeds of the additional
borrowings of the  subordinated  convertible notes, and the remainder were paid
from working capital. At January 1, 1998, Standard Management was authorized to
purchase an additional 365,644 shares under this program.

      At February 28, 1998, Standard  Management had "parent company only" cash
and short-term investments of $558,000.  These  funds are available to Standard
Management  for  general  corporate  purposes.  Standard  Management's  "parent
company  only"  operating  expenses  (not  including  interest   expense)  were
$3,420,000 and $3,470,000 for 1997 and 1996, respectively.

      Pursuant  to the management services agreement with Standard  Management,
Standard Life paid Standard Management a monthly fee of $166,667 (annual fee of
$2,000,000)  during  1997  for  certain  management  services  related  to  the
production of  business,  investment  of assets and evaluation of acquisitions.
Pursuant  to  the  management  service agreements  with  Standard  Life,  Dixie
National Life paid monthly payments  of  $83,333  (annual fee of $1,000,000) to
Standard  Life  in  1997. Both of these agreements provide  that  they  may  be
modified or terminated  by the Indiana and Mississippi departments of insurance
in the event of financial hardship of Standard Life or Dixie National Life.

      A management services agreement between SMC and Savers Life was approved
by the North Carolina Department of Insurance on March 11, 1998.  The
management services agreement calls for the payment of $83,333 per month by 
Savers Life to SMC for financial and regulatory reporting, investment of
assets and the production of business.  SMC has agreed to receive no fee, nor
shall Savers life have an obligation to pay, unless the capital and surplus of 
Savers Life is $7,000,000 after the acquisition of Savers Life.  The amount
of capital and surplus of Savers Life at December 31, 1997 was $7,134,00.

      In addition, as a condition of the acquisition of Savers Life, SMC
entered into an agreement with the North Carolina Department of Insurance to
maintain statutory capital and surplus of Savers Life of at least $6,000,000.

      Pursuant to the management  services  agreement with Standard Management,
Premier Life (Luxembourg) paid Standard Management  a management fee of $25,000
per  quarter  during  1997 and 1996 for certain management  and  administrative
services. The agreement  provides  that  it  may  be  modified or terminated by
either Standard Management or Premier Life (Luxembourg).

      At April 1, 1995, Standard Management sold its property  and equipment to
an  unaffiliated  leasing/financing  company  for  $1,396,000  and subsequently
entered  into  a  capital lease obligation whereby Standard Management  pays  a
monthly  rental amount  of  $45,000.  Standard  Management  charges  a  monthly
equipment  rental  fee  to  its  subsidiaries for this equipment and additional
equipment purchased after April 1,  1995.  The  amount of the rental fee income
received from Standard Management's subsidiaries  was  $1,145,000  and $853,000
for 1997 and 1996, respectively.

      On  November  8, 1996, Standard Life acquired through merger Shelby  Life
from DLAC for approximately $14,650,000, including $13,000,000 in cash, 250,000
shares of restricted  SMC  Common  Stock (valued at $1,250,000) and $400,000 of
acquisition costs. Financing for the  Shelby  Life  transaction was provided by
senior debt of $10,000,000 under the Amended Credit Agreement and $4,000,000 in
subordinated convertible debt described below.

      The Amended Credit Agreement permits Standard Management  to borrow up to
$20,000,000  in  the  form of a seven-year reducing revolving loan arrangement.
Standard Management has  agreed  to  pay a non-use fee of .50% per annum on the
unused portion of the commitment. In connection  with  the original and Amended
Credit Agreement, Standard Management issued warrants to  the  bank to purchase
77,500 shares of SMC Common Stock. Borrowing under the Amended Credit Agreement
may be used for contributions to surplus of insurance subsidiaries, acquisition
financing, and repurchases of Class S Preferred and SMC Common Stock.  The debt
is secured by a Pledge Agreement of all of the issued and outstanding shares of
common stock of Standard Life and Standard Marketing. Interest on the borrowing
under  the  Amended  Credit  Agreement is determined, at the option of Standard
Management, to be: (i) a fluctuating  rate  of interest based on corporate base
rate announced by the bank from time to time  plus 1% per annum, or (ii) a rate
at LIBOR plus 3.25%. Annual principal repayments  of  $3,333,000 begin in March
2000 and conclude in March 2005. Indebtedness incurred under the Amended Credit
Agreement  is  subject to certain restrictions and covenants  including,  among
other things, certain  minimum  financial  ratios,  minimum  statutory  surplus
requirements  for  the  insurance  subsidiaries,  minimum  consolidated  equity
requirements  for  Standard  Management and certain investment and indebtedness
limitations. At December 31, 1997, Standard Management had borrowed $16,000,000
under the Amended Credit Agreement  at  a  weighted  average  interest  rate of
9.062%.

      In  connection  with  the acquisition of Shelby Life, Standard Management
borrowed  $4,000,000  from an insurance  company  pursuant  to  a  subordinated
convertible debt agreement  which  is due in December, 2003.  At June 30, 1997,
this  subordinated convertible debt agreement  was  amended  to  the  principal
amount  of  $4,372,000  which is due July 2004 unless previously converted, and
requires interest payments  in cash on January 1 and July 1 of each year at 10%
per annum.  At June 30, 1997,  SMC  borrowed  an  additional $5,628,000 from an
insurance company pursuant to another subordinated  convertible  debt agreement
(collectively, the "Notes") which is due July 2004 unless previously converted,
and requires interest payments in cash on January 1 and July 1 of  each year at
10%  per  annum.   Proceeds  from  the  additional  borrowings  were  used  for
contributions to surplus of insurance subsidiaries of $2,400,000, redemption of
Class S Preferred Stock of approximately $1,840,000 and other general corporate
purposes.   The  Notes  are  convertible  at  any  time  at  the  option of the
noteholders into Common Stock at the rate of $5.747 per share.  The  Notes  may
be  prepaid in whole or in part at the option of SMC commencing on July 1, 2000
at redemption  prices  equal  to  105%  of  the  principal amount (plus accrued
interest)  and  declining  to  102%  of  the  principal  amount  (plus  accrued
interest).   The  Notes may be prepaid prior to July 1, 2000  at  a  redemption
price equal to 101% of the principal amount plus accrued interest under certain
limited circumstances.   The subordinated  convertible debt agreements contains
terms and financial covenants  substantially  similar  to  those in the Amended
Credit Agreement.

      Assuming the current level of debt under the Amended Credit Agreement and
current interest rates at December 31, 1997 (weighted average  rate of 9.062%),
annual debt service in 1998 would be approximately $2,800,000 in interest paid.
In addition, Standard Management has 1998 obligations under a capital  lease of
$151,000.

      From  the  funds  borrowed by Standard Management pursuant to the Amended
Credit Agreement and the  subordinated  convertible debt agreement, $13,000,000
was  loaned  to  Standard  Life  pursuant  to an  Unsecured  Surplus  Debenture
Agreement ("Surplus Debenture") which requires  Standard Life to make quarterly
interest payments to Standard Management at a variable corporate base rate plus
2% per annum, and annual principal payments of $1,000,000 per year beginning in
2007 and concluding in 2019. The interest and principal payments are subject to
quarterly  approval  by  the  Indiana Department of Insurance,  depending  upon
satisfaction of certain financial  tests  relating to levels of Standard Life's
capital and surplus and general approval of  the  Commissioner  of  the Indiana
Department  of  Insurance.  Standard  Management  currently  anticipates  these
quarterly approvals will be granted. Assuming the approvals are granted and the
December  31,  1997  interest  rate  of  10.50%  continues  in  1998,  Standard
Management  will  receive  interest  income  of  $1,365,000  from  the  Surplus
Debenture for 1998.

      Dividends  from Standard Life to Standard Management are limited by  laws
applicable to insurance  companies.  As an Indiana domiciled insurance company,
Standard  Life may pay a dividend or distribution  from  its  surplus  profits,
without the  prior  approval  of  the Commissioner of the Indiana Department of
Insurance, if the dividend or distribution,  together  with all other dividends
and distributions paid within the preceding twelve months,  does not exceed the
greater of (i) net gain from operations or (ii) 10% of surplus, in each case as
shown in its preceding annual statutory financial statements.  Also, regulatory
approval  is  required  when  dividends to be paid exceed unassigned  statutory
surplus. For the year ended December 31, 1997, Standard Life reported statutory
net gain from operations before  realized  capital  losses  of  $2,374,000  and
statutory   surplus   of  $25,923,000  which  includes  unassigned  surplus  of
$1,693,000. During 1998, Standard Life can pay dividends of approximately 
$2,500,000 without regulatory approval.

      As a North Carolina domiciled insurance company, Savers Life may pay a
dividend or distribution from its capital and surplus, without the prior
approval of the North Carolina Commissioner of Insurance, if the dividend or
distribution together with all other dividends and distributions paid within
the preceding twelve months, does not exceed the lesser of (i) net gain from
operations or (ii) 10% of capital and surplus, in each case as shown in its
preceding annual statutory financial statements.  Savers Life was not allowed
to pay a dividend in 1996 or 1997 without prior North Carolina Department of
Insurance approval due to its statutory net losses in 1995 and 1996.  Savers
Life will not be permitted to pay dividends in 1998 without such approval.

      Standard Management  anticipates  the  available  cash  from its existing
working  capital,  plus  anticipated  1998  dividends, management fees,  rental
income and interest payments on its Surplus Debentures  receivable will be more
than adequate to meet its anticipated "parent company only"  cash  requirements
for 1998.

      Standard Management has a note receivable of $2,858,000 from an affiliate
and a note payable of $2,858,000 to a different affiliate. This note receivable
and note payable are eliminated in the consolidated financial statements.

      U.S.  INSURANCE  OPERATIONS.   The  principal  liquidity requirements  of
Standard Life are its contractual obligations to policyholders, dividend, rent,
management fee and Surplus Debenture payments to Standard  Management and other
operating  expenses.  The primary source of funding for these  obligations  has
been cash flow from premium income, net investment income, investment sales and
maturities and sales of  FPDAs.  These  sources  of liquidity for Standard Life
significantly exceed scheduled uses. Liquidity is  also affected by unscheduled
benefit   payments  including  death  benefits  and  policy   withdrawals   and
surrenders.  The  amount of withdrawals and surrenders is affected by a variety
of  factors such as  renewal  interest  crediting  rates,  interest  rates  for
competing  products,  general  economic  conditions,  Standard Life's A.M. Best
ratings  (currently  rated  "B+")  and  events  in  the  industry  that  affect
policyholders' confidence.

      The  policies  and  annuities issued by Standard Life contain  provisions
that allow policyholders to  withdraw or surrender their policies under defined
circumstances. These policies  and annuities generally contain provisions which
apply penalties or otherwise restrict the ability of policyholders to make such
withdrawals or surrenders. Standard  Life  closely  monitors  the surrender and
policy loan activity of its insurance products and manages the  composition  of
its investment portfolios, including liquidity, in light of such activity.

      Changes  in  interest rates may affect the incidence of policy surrenders
and other withdrawals.  In  addition  to  the  potential  effect  on liquidity,
unanticipated  withdrawals  in  a  changing  interest  rate  environment  could
adversely  affect  earnings if SMC were required to sell investments at reduced
values  to  meet  liquidity  demands.  SMC  manages  the  asset  and  liability
portfolios in order  to minimize the adverse earnings effect of changing market
interest rates. SMC seeks  assets that have duration characteristics similar to
the liabilities that they support.  SMC also prepares cash flow projections and
performs cash flow tests under various market interest rate scenarios to assist
in evaluating liquidity needs and adequacy.  SMC's  U.S. insurance subsidiaries
currently  expect  available  liquidity sources and future  cash  flows  to  be
adequate to meet the demand for funds.

      Statutory surplus is computed  according to rules prescribed by the NAIC,
as modified by the Indiana Department  of  Insurance, or the state in which the
insurance subsidiaries do business. Statutory  accounting  rules  are different
from  GAAP  and  are intended to reflect a more conservative perspective.  With
respect  to  new  business,   statutory   accounting  practices  require  that:
(i)  acquisition  costs (primarily commissions  and  policy  issue  costs)  and
(ii) reserves for future  guaranteed  principal payments and interest in excess
of statutory rates, be expensed in the  year the new business is written. These
items cause a reduction in statutory surplus  ("surplus  strain")  in  the year
written for many insurance products. SMC designs its products to minimize  such
first-year  losses,  but certain products continue to cause a statutory loss in
the year written. For each product, SMC controls the amount of net new premiums
written to manage the  effect  of  such  surplus strain. SMC's long-term growth
goals  contemplate continued growth in its  insurance  businesses.  To  achieve
these growth  goals,  SMC's  U.S.  insurance subsidiaries will need to increase
statutory surplus. Additional statutory  surplus may be secured through various
sources such as internally generated statutory  earnings, infusions by Standard
Management  with funds generated through debt or equity  offerings  or  mergers
with other life  insurance  companies.  If  additional capital is not available
from one or more of these sources, SMC believes  that  it  could reduce surplus
strain  through  the  use  of  reinsurance  or through reduced writing  of  new
business.

      During 1997, Standard Life produced a statutory net income of $1,776,000.
Standard  Management  contributed  $2,400,000  to  Standard  Life  in  1997  to
facilitate growth in premiums written.  In March  1996,  Standard Life sold its
subsidiary, First International, and realized an increase  in statutory capital
and surplus of approximately $4,951,000 from the statutory gain on the sale and
related reinsurance transactions.

      Commencing January 1, 1995, Standard Life began to reinsure  a portion of
its  annuity  business.  This  reinsurance  agreement has allowed SMC to  write
volumes of business that it would not otherwise  have been able to write due to
regulatory  restrictions  based  on  its  ratio of surplus  to  liabilities  as
determined by regulatory authorities in the  State  of Florida. By reinsuring a
portion  of  the  annuity  business, the liability growth  is  slowed,  thereby
avoiding the erosion of surplus  that occurs in periods of increasing sales. If
SMC's ratio of surplus to liabilities  falls  below  4%,  the  State of Florida
could  prohibit  SMC  from  writing  new  business in Florida. Standard  Life's
largest  annuity  reinsurer  at December 31, 1997,  Winterthur,  is  rated  "A"
("Excellent")  by  A.M.  Best.  From   January  1,  1995  to  August  31,  1995
approximately 70% of certain of Standard  Life's  annuity business produced was
ceded. Standard Life decreased the quota-share portion of business ceded to 50%
at September 1, 1995 and further reduced it to 25%  effective  April 1, 1996 to
reflect  the reduced need for additional capital and increase current  earnings
potential.  This reduction was possible since the surplus strain experienced by
Standard Life  was  not as great as originally anticipated as a result of lower
than expected sales in 1995 and the increase in surplus resulting from the sale
of First International. In addition, Standard Life's ability to retain business
was further increased  by contributions to surplus of insurance subsidiaries of
$2,400,000  in  1997.  Winterthur  limits  dividends  and  other  transfers  by
Standard  Life to  Standard  Management  or  affiliated  companies  in  certain
circumstances.

      Management  believes  that operational cash flow of Standard Life will be
sufficient to meet its anticipated  needs  for  1998.  As of December 31, 1997,
Standard  Life  had  statutory capital and surplus for regulatory  purposes  of
$25,923,000 compared to  $22,970,000  at  December  31,  1996.  The increase is
primarily   due  to  the  capital  contribution  of  $2,400,000  from  Standard
Management in  1997.   As  the  life insurance and annuity business produced by
Standard Life and Dixie National  Life  increases,  Standard  Life  expects  to
continue   to  satisfy  statutory  capital  and  surplus  requirements  through
statutory profits,  through  the  continued reinsurance of a portion of its new
business, and through additional capital  contributions by Standard Management.
Net cash flow from operations on a statutory  basis  of  Standard  Life,  after
payment of benefits and operating expenses, was $19,588,000 and $17,921,000 for
1997  and  1996, respectively. If the need arises for cash which is not readily
available, additional  liquidity  could  be  obtained from the sale of invested
assets.

      State insurance regulatory authorities impose  minimum risk-based capital
requirements  on insurance enterprises that were developed  by  the  NAIC.  The
formulas for determining  the  amount  of RBC specify various weighting factors
that are applied to financial balances or  various  levels of activity based on
the perceived degree of risk. Regulatory compliance is  determined  by  a ratio
(the  "RBC  Ratio")  of the enterprise's regulatory total adjusted capital,  as
defined by the NAIC, to  its  authorized  control  level RBC, as defined by the
NAIC. Enterprises below specific trigger points or ratios are classified within
certain  levels, each of which requires specified corrective  action.  Each  of
SMC's insurance  subsidiaries  has  an  RBC  Ratio that is at least 400% of the
minimum  RBC  requirements;  accordingly,  the  subsidiaries   meet   the   RBC
requirements.

      Standard  Life's  acquisition  of  Shelby Life, and merger of Shelby Life
into  Standard  Life, effective November 1,  1996  is  anticipated  to  have  a
positive effect on Standard Life's liquidity and cash flows. Shelby Life ceased
writing new business  effective  November  1,  1996,  thus reducing the surplus
strain normally associated with the issuance of new policies.  The  anticipated
profits from Shelby Life's book of business are expected to exceed the  related
interest expense connected with the $13,000,000 of Surplus Debentures issued by
Standard Life in connection with the acquisition of Shelby Life.

      SMC's acquisition of Savers Life at March 12, 1998 is anticipated to have
a  positive  effect  on  SMC's  liquidity and cash flows.  SMC anticipates that
existing working capital, unused  proceeds  from  borrowings  under the Amended
Credit Agreement, and management fees by Savers Life will be adequate  to cover
debt  service  on  the additional borrowings under the Amended Credit Agreement
through 1998.

      INTERNATIONAL  OPERATIONS.   The  consolidated  balance  sheet  of SMC at
December  31, 1997, includes a $1,388,000 credit representing negative goodwill
on the purchase  of  Standard  Management International which will be amortized
into earnings during 1998.  This  amortization  is  a  non-cash  credit  to SMC
statement of operations.

      Standard   Management   International   dividends   are  limited  to  its
accumulated   earnings   without   regulatory  approval.  Standard   Management
International and Premier Life (Luxembourg) were not permitted to pay dividends
in 1997 and 1996 due to accumulated  losses. Premier Life (Bermuda) did not pay
dividends in 1997 and 1996. SMC does not  anticipate  any  dividends from these
companies in 1998.

      Due  to the nature of unit-linked products issued by Standard  Management
International,   which   represent   over   90%   of  the  Standard  Management
International  portfolio,  the  investment risk rests  with  the  policyholder.
Investment risk for Standard Management  International  exists  where  Standard
Management  International  makes  investment  decisions  with  respect  to  the
remaining traditional business and for the assets backing certain actuarial and
regulatory  reserves.  The  investments  underlying  these  liabilities  mostly
represent  short-term  investments  and  fixed maturity securities. These short
term  investments  and fixed maturity securities  are  normally  bought  and/or
disposed of only on  the advice of independent consulting actuaries who perform
an annual analysis comparing  anticipated cash flows on the insurance portfolio
with the cash flows from the fixed  maturity securities. Any resulting material
mismatches  are then covered by adjusting  the  securities  in  the  investment
portfolio as appropriate.


<PAGE>
FACTORS THAT MAY AFFECT FUTURE RESULTS

      MERGERS,  ACQUISITIONS  AND  CONSOLIDATIONS.  The U.S. insurance industry
has experienced an increasing number  of  mergers, acquisitions, consolidations
and sales of certain business lines. These consolidations have been driven by a
need  to reduce costs of distribution and overhead  and  maintain  business  in
force. Additionally, increased competition, regulatory capital requirements and
technology  costs  have  also  contributed to the level of consolidation in the
industry. These forces are expected  to  continue  as  is the level of industry
consolidation.

      FOREIGN  CURRENCY RISK.  Standard Management International  policyholders
invest in assets  denominated  in  a  wide  range  of currencies. Policyholders
effectively bear the currency risk, if any, as these investments are matched by
policyholder  separate  account liabilities. Therefore,  their  investment  and
currency risk is limited  to  premiums  they  have  paid. Policyholders are not
permitted  to invest directly into options, futures and  derivatives.  Standard
Management  International   could   be  exposed  to  currency  fluctuations  if
currencies within the conventional investment  portfolio  or  certain actuarial
reserves are mismatched. The assets and liabilities of this portfolio  and  the
reserves are continually matched by the company and at regular intervals by the
independent  actuary.  In  addition,  Premier  Life  (Luxembourg) shareholder's
equity is denominated in Luxembourg francs. Premier Life  (Luxembourg) does not
hedge  translation  risk  because  its  stockholder's  equity  will  remain  in
Luxembourg  francs  for  the  foreseeable  future  and no significant  realized
foreign exchange gains or losses are anticipated. At  December  31, 1997, there
was  an  unrealized  loss  from  foreign  currency  translation  adjustment  of
$473,000.

      UNCERTAINTIES  REGARDING INTANGIBLE ASSETS.  Included in SMC's  financial
statements as of December  31,  1997  are  certain  assets  that are valued for
financial statement purposes primarily on the basis of assumptions  established
by  SMC's management. These assets include deferred acquisition costs,  present
value   of  future  profits,  costs  in  excess  of  net  assets  acquired  and
organization  and deferred debt issuance costs. The total value of these assets
reflected in the  December  31,  1997  consolidated  balance  sheet  aggregated
$43,492,000   or  6%  of  SMC's  assets.  SMC  has  established  procedures  to
periodically  review  the  assumptions  utilized  to  value  these  assets  and
determine the need to make any adjustments in such values in SMC's consolidated
financial statements.  SMC  has determined that the assumptions utilized in the
initial valuation of these assets are consistent with the current operations of
SMC as of December 31, 1997.

      REGULATORY ENVIRONMENT.   Currently,  prescribed  or  permitted statutory
accounting  principles  ("SAP") may vary between states and between  companies.
The NAIC is in the process  of  codifying  SAP  to  promote  standardization of
methods  utilized  throughout  the  industry. Completion of this project  might
result  in  changes  in  statutory accounting  practices  for  SMC's  insurance
subsidiaries; however, it  is  not  expected that such changes would materially
affect SMC's insurance subsidiaries' statutory capital requirements.

      FINANCIAL SERVICES DEREGULATION.  The United States Congress is currently
considering a number of legislative proposals  intended  to reduce or eliminate
restrictions on affiliations among financial services organizations.  Proposals
are  extant  which  would  allow  banks  to  own or affiliate with insurers and
securities firms. An increased presence of banks  in  the  life  insurance  and
annuity  businesses  may  increase  competition  in  these markets. The Company
cannot predict the impact of these proposals on the earnings of the Company.

      IMPACT OF YEAR 2000.  Some of the Company's older  computer programs were
written using two digits rather than four to define the applicable  year.  As a
result,  those computer programs have time-sensitive software that recognize  a
date using "00" as the year 1900 rather than the year 2000.  This could cause a
system failure or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send billing
notices, or engage in similar normal business activities.

      The   Company   has   completed  an  assessment  and  will  have  minimal
expenditures to modify or replace portions of its software so that its computer
systems will function properly  with  respect  to  dates  in  the year 2000 and
thereafter.   Modifications and or replacements are estimated to  be  completed
not later than  December  31, 1998, which is prior to any anticipated impact on
its  operating  systems.  The  Company  believes  that  with  modifications  to
existing software and conversions to new software, the Year 2000 Issue will not
pose significant  operational problems for its computer systems.  Additionally,
management has concluded  that  the  Year 2000 Issue will not materially affect
future financial results, or cause reported  financial  information  not  to be
indicative of future operating results or future financial condition.

      SAFE  HARBOR  PROVISIONS.   All  statements,  trend  analyses,  and other
information  contained  in  this  Annual  Report  on  Form 10-K or any document
incorporated by reference herein relative to markets for the Company's products
and trends in the Company's operations or financial results,  as  well as other
statements     including     words    such    as    "anticipate,"    "believe,"
"plan,""estimate,""expect,""intend,"  and other similar expressions, constitute
forward-looking statements under the Private  Securities  Litigation reform Act
of  1995.   These forward-looking statements are subject to known  and  unknown
risks, uncertainties  and  other  factors  which may cause actual results to be
materially   difference  from  those  contemplated   by   the   forward-looking
statements.  Such  factors  include,  among other things:  (1) general economic
conditions and other factors, including  prevailing interest rate levels, stock
market performance and health care inflation,  which  may affect the ability of
the Company to sell its products, the market value of the Company's investments
and  the  lapse  rate  and  profitability  of the Company's policies;  (2)  the
Company's ability to achieve anticipated levels  of operational efficiencies at
recently acquired companies, as well as through other  cost-saving initiatives;
(3)  customer  response  to new products, distribution channels  and  marketing
initiatives; (4) mortality,  morbidity, usage of health care services and other
factors which may affect the profitability of the Company's insurance products;
(5) changes in the Federal income  tax laws and regulation which may affect the
relative  tax  advantages of some of the  Company's  products;  (6)  increasing
competition in the  sale  of  the Company's products; (7) regulatory changes or
actions, including those relating to regulation of financial services affecting
(among  other  things)  bank sales  and  underwriting  of  insurance  products,
regulation of the sale, underwriting  and  pricing  of  insurance products, and
health  care regulation affecting the Company's supplemental  health  insurance
products;  (8)  the  availability and terms of future acquisitions; and (9) the
risk  factors or uncertainties  listed  from  time  to  time  in  any  document
incorporated by reference herein.

ITEM 8.CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      The  financial statements and supplementary data required with respect to
this Item 8  are  listed in Item 14(a)(1) and included in a separate section of
this report.

ITEM  9.CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
      FINANCIAL DISCLOSURE

      None.

                                      PART III

      The  Registrant will  file  a  definitive  proxy  statement  pursuant  to
Regulation 14A  of  the  Securities Exchange Act of 1934 in connection with the
Company's 1998 Annual Meeting  of  Shareholders,  (the  "Proxy  Statement") not
later  than  120 days after the end of the fiscal year covered by this  report,
and certain information  included  therein is incorporated herein by reference.
Only  those sections of the Proxy Statements  which  specifically  address  the
items set  forth herein are incorporated by reference.  Such incorporation does
not include the Compensation Committee Report or the Performance Graph included
in the Proxy Statement.

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      The information  concerning  SMC's  directors  required  by  this item is
incorporated by reference to SMC's Proxy Statement.

      The information concerning SMC's executive officers required by this Item
is  incorporated  by  reference  herein  to  the  section  in  Part I, entitled
"Executive Officers."

      The  information  regarding compliance with Section 16 of the  Securities
and Exchange Act of 1934  is  to  be  set  forth  in the Proxy Statement and is
hereby incorporated by reference.

ITEM 11.  EXECUTIVE COMPENSATION

      The  information required by this Item is incorporated  by  reference  to
SMC's Proxy Statement.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The information  required  by  this  Item is incorporated by reference to
SMC's Proxy Statement.

ITEM 13.  CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS

      The information required by this Item  is  incorporated  by  reference to
SMC's Proxy Statement.

<PAGE>
                                       PART IV


ITEM 14.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1)  and  (2)   The  response to this portion of Item 14 is submitted  as  a
separate section of this report.

(a)(3)  List of Exhibits:


Exhibit
NUMBER         DESCRIPTION OF DOCUMENT


2.1      Amended  and  Restated  Agreement  and Plan  of  Merger  dated  as  of
         December  9, 1997 among SMC, SAC and  Savers  Life.  (incorporated  by
         reference to  SMC's  Registration  Statement on Form S-4 (Registration
         No. 333-43023).

3.1      Amended   and   Restated   Articles  of  Incorporation,   as   amended
         (incorporated by reference to  SMC's  Annual Report on Form 10-K (File
         No. 0-20882) for the year ended December 31, 1995).

3.2      Amended  and  Restated  Bylaws  of  SMC  as amended  (incorporated  by
         reference to SMC's Registration Statement  on  Form  S-1 (Registration
         No. 33-53370) as filed with the Commission on January  27, 1993 and to
         Exhibit  3  of SMC's Quarterly Report on Form 10-Q (File No.  0-20882)
         for the quarter ended September 30, 1994).

4.1      Form of Senior  Note  Agreement  Warrant (incorporated by reference to
         SMC's Registration Statement on Form S-1 (Registration No. 33-53370)).

4.2      Form of Oppbridge Partners Warrant (incorporated by reference to SMC's
         Registration Statement on Form S-1 (Registration No. 33-53370)).

4.3      Registration Rights Agreement, dated  as  of  May  3,  1990 among SMC,
         Howard  T. Cohn and Joseph J. Piazza and the first amendment  thereto,
         dated June  4,  1990  (incorporated by reference to SMC's Registration
         Statement on Form S-1 (Registration No. 33-53370).

4.4      Amended and Restated Registration  Rights  Agreement dated as of April
         15, 1997 by and between SMC and Fleet National Bank.

4.5      Form of Fleet National Bank Warrant.

4.6      Form of President's Club Warrant (incorporated  by  reference to SMC's
         Annual Report on Form 10-K (File No. 0-20882)).

4.7      Registration  Rights  Agreement dated as of November 8,  1996  by  and
         between  SMC  and Great American  Reserve  Insurance  Company  ("Great
         American Reserve")  (incorporated  by  reference  to  SMC's  Quarterly
         Report  on  Form  10-Q  (File  No.  0-20882)  for  the  quarter  ended
         September 30, 1996).

4.8      Form  of  Sand  Brothers  &  Company,  Ltd.  Warrant  (incorporated by
         reference to SMC's Annual Report on Form 10-K (File No.  0-20882)  for
         the year ended December 31, 1997).

9        Voting  Trust  Agreement dated as of November 8, 1996 among Delta Life
         and Annuity Company, Messrs. Ronald D. Hunter and Allen O. Jones, Jr.,
         as Voting Trustees,  and  SMC  (incorporated  by  reference  to  SMC's
         Registration Statement on Form S-4 (Registration No. 333-35447)).

10.1           Amended  Advisory Agreement, dated as of August 1, 1991, between
               SMC and Conseco  Capital Management, Inc., as amended, April 17,
               1995 (incorporated  by  reference  to  SMC's  Annual  Report  on
               Form  10-K  (File  No.  0-20882) for the year ended December 31,
               1996).

10.2           Second Amended and Restated  Employment  Contract by and between
               SMC  and  Ronald  D.  Hunter, dated and effective,  as  amended,
               April 3, 1995 (incorporated  by  reference  to  SMC's  Quarterly
               Report  on  Form  10-Q  (File No. 0-20882) for the quarter ended
               June 30, 1995).


Exhibit
NUMBER         DESCRIPTION OF DOCUMENT

10.3           Second Amended and Restated  Employment  Contract by and between
               SMC  and  Edward  T.  Stahl,  dated and effective,  as  amended,
               April  3, 1995 (incorporated by  reference  to  SMC's  Quarterly
               Report on  Form  10-Q  (File  No. 0-20882) for the quarter ended
               June 30, 1995).

10.4           Second Amended and Restated Employment  contract  by and between
               SMC  and  Raymond  J.  Ohlson, dated and effective, as  amended,
               April 3, 1995 (incorporated  by  reference  to  SMC's  Quarterly
               Report  on  Form  10-Q  (File No. 0-20882) for the quarter ended
               June 30, 1995).

10.5           First Amended and Restated  Employment  Contract  by and between
               SMC  and  Stephen  M. Coons dated and effective, April  3,  1995
               (incorporated  by  reference   to   SMC's  Quarterly  Report  on
               Form  10-Q (File No. 0-20882) for the  quarter  ended  June  30,
               1995).

10.6           Indemnification  Agreement  between SMC and Stephen M. Coons and
               Coons & Saint, dated August 1,  1991  (incorporated by reference
               to  SMC's  Registration  Statement  on  Form  S-1  (Registration
               No. 33-53370) as filed with the Commission on January 27, 1993).

10.7           Standard Management Corporation Amended and  Restated 1992 Stock
               Option   Plan  (incorporated  by  reference  to  the   Company's
               Registration  Statement on Form S-4 (Registration No. 333-35447)
               as filed with the Commission on September 11, 1997.

10.8           Lease by and between  Standard  Life  and  WRC Properties, Inc.,
               dated  February  27,  1991 (incorporated by reference  to  SMC's
               Registration Statement  on  Form S-1 (Registration No. 33-53370)
               as filed with the Commission on January 27, 1993).

10.9           Management Service Agreement between Standard Life and SMC dated
               August 1, 1992, as amended on  January  1, 1997 (incorporated by
               reference to SMC's Annual Report on Form 10-K (File No. 0-20882)
               for the year ended December 31, 1996).

10.10          Agreement  for  Assumption  Reinsurance  between   the  National
               Organization  Of Life and Health Insurance Guaranty Associations
               and  Standard  Life,  concerning,  The  Midwest  Life  Insurance
               Company In Liquidation  effective  June 1, 1992 (incorporated by
               reference   to  SMC's  Registration  Statement   on   Form   S-1
               (Registration  No.  33-53370)  as  filed  with the Commission on
               January 27, 1993).

10.11          Reinsurance Agreement between Standard Life  and  Swiss  Re Life
               and  Health effective May 1, 1975 (incorporated by reference  to
               SMC's   Registration   Statement   on   Form  S-1  (Registration
               No. 33-53370) as filed with the Commission on January 27, 1993).

10.12          Reinsurance Agreement between Firstmark Standard  Life Insurance
               Company and Swiss Re Life and Health effective February  1, 1984
               (incorporated  by  reference to SMC's Registration Statement  on
               Form  S-1  (Registration   No.   33-53370)  as  filed  with  the
               Commission on January 27, 1993).

10.13          Reinsurance Contract between First  International  and  Standard
               Life  dated  July  10,  1992 (incorporated by reference to SMC's
               Registration Statement on  Form  S-1 (Registration No. 33-53370)
               as filed with the Commission on January 27, 1993).

10.14          Amended  Reinsurance  Agreement  between   Standard   Life   and
               Winterthur  Life  Re Insurance Company effective January 1, 1995
               (incorporated by reference  to  SMC's Annual Report on Form 10-K
               (File No. 0-20882) for the year ended December 31, 1996).

10.15          Management Service Agreement between  Premier  Life (Luxembourg)
               and SMC dated September 30, 1994 (incorporated by  reference  to
               SMC's Annual Report on Form 10-K (File No. 0-20882) for the year
               ended December 31, 1994).

10.16          Assignment  of  Management  Contract  dated  October  2, 1995 of
               Management Contract dated January 1, 1987 between DNC and  Dixie
               National  Life  to  Standard  Life (incorporated by reference to
               SMC's Annual Report on Form 10-K (File No. 0-20882) for the year
               ended December 31, 1996).

<PAGE>

Exhibit
NUMBER         DESCRIPTION OF DOCUMENT


10.17          Automatic  Indemnity  Reinsurance Agreement  between  the  First
               International and The Guardian Insurance & Annuity Company, Inc.
               dated and effective January  1,  1996 (incorporated by reference
               to SMC's Annual Report on Form 10-K  (File  No. 0-20882) for the
               year ended December 31, 1996).

10.18          Indemnity   Retrocession   Agreement   between   The    Guardian
               Insurance  &  Annuity  Company, Inc. and the Standard Life dated
               and effective January 1,  1996  (incorporated  by  reference  to
               SMC's Annual Report on Form 10-K (File No. 0-20882) for the year
               ended December 31, 1996).

10.19          Automatic  Indemnity  Reinsurance Agreement between The Guardian
               Insurance & Annuity Company,  Inc.  and  the Standard Life dated
               and  effective  January 1, 1996 (incorporated  by  reference  to
               SMC's Annual Report on Form 10-K (File No. 0-20882) for the year
               ended December 31, 1996).

10.20          Administrative Services  Agreement  between  First International
               and   Standard   Life   dated  and  effective  March  18,   1996
               (incorporated by reference  to  SMC's Annual Report on Form 10-K
               (File No. 0-20882) for the year ended December 31, 1996).

10.21          Amendment No. 1 to Amended and Restated Revolving Line of Credit
               Agreement  dated  as  of March 10, 1998 between  SMC  and  Fleet
               National Bank.

10.22          Amended and Restated Note  Agreement  dated as of March 10, 1998
               between  SMC  and  Fleet  National  Bank  in   the   amount   of
               $20,000,000.

10.23          Amended and Restated Pledge Agreement dated as of March 10, 1998
               between SMC and Fleet National Bank.

10.24          Revised  Service Contract Agreement dated as of October 16, 1995
               and effective January 1, 1995 between Standard Life and Standard
               Marketing  (incorporated  by reference to SMC's Annual Report on
               Form 10-K (File No. 0-20882)  for  the  year  ended December 31,
               1996).

10.25          Note  Agreement  dated  as of November 8, 1996, as  amended  and
               restated  on  June 30, 1997,   by  and  between  SMC  and  Great
               American Reserve  in  the  amount of $4,371,573 (incorporated by
               reference  to  SMC's  Quarterly   Report   on  Form  10-Q  (File
               No. 0-20882) for the quarter ended June 30, 1997).

10.26          Surplus Debenture dated as of November 8, 1996  by  and  between
               SMC and Standard Life in the amount of $13,000,000 (incorporated
               by  reference  to  SMC's  Quarterly  Report  on  Form 10-Q (File
               No. 0-20882) for the quarter ended September 30, 1996).

10.27          Portfolio Indemnify Reinsurance Agreement between Dixie National
               Life  and  Cologne Life Reinsurance Company dated and  effective
               December 31,  1996  (incorporated  by  reference to SMC's Annual
               Report  on  Form  10-K  (File No. 0-20882) for  the  year  ended
               December 31, 1996).

10.28          Note Agreement dated as of  June  30,  1997 between SMC, Capitol
               American  Life  Insurance Company and Transport  Life  Insurance
               Company in the amount  of  $5,628,427 (incorporated by reference
               to SMC's Quarterly Report on  Form  10-Q  (File No. 0-20882) for
               the quarter ended June 30, 1997).

10.29          Senior Subordinated Convertible Note dated  as  of June 30, 1997
               between SMC and Capitol American Life Insurance Company  in  the
               amount   of  $3,628,427  (incorporated  by  reference  to  SMC's
               Quarterly Report on Form 10-Q (File No. 0-20882) for the quarter
               ended June 30, 1997).

10.30          Senior Subordinated  Convertible  Note dated as of June 30, 1997
               between SMC and Transport Life Insurance  Company  in the amount
               of  $2,000,000  (incorporated  by  reference  to SMC's Quarterly
               Report  on  Form 10-Q (File No. 0-20882) for the  quarter  ended
               June 30, 1997).
<PAGE>
Exhibit
NUMBER         DESCRIPTION OF DOCUMENT


10.31          Coinsurance  Agreement  effective  as  of  July  1,  1997 by and
               between Savers Life and World Insurance Company (incorporated by
               reference   to   SMC's   Registration   Statement  on  Form  S-4
               (Registration No. 333-35447)).

10.32          Amendment  I  to  the Guardian Indemnity Retrocession  Agreement
               effective as of January  1,  1996  by  and  between The Guardian
               Insurance and Annuity Company and Standard Life (incorporated by
               reference   to   SMC's  Registration  Statement  on   Form   S-4
               (Registration No. 333-35447)).

10.33          Promissory Note from  Ronald  D.  Hunter to SMC in the amount of
               $775,500 executed October 28, 1997 (incorporated by reference to
               SMC's Quarterly Report on Form 10-Q  (File  No. 0-20882) for the
               quarter ended September 30, 1997).

10.34          Reinsurance Agreement between Standard Life and Life Reassurance
               Corporation of America effective September 1, 1997.

10.35          Reinsurance Agreement between Standard Life and  Business  Men's
               Assurance Company of America effective September 1, 1997.

21             List of Subsidiaries of SMC

23.1           Consent of Ernst & Young LLP

23.2           Consent of KPMG Audit

24             Powers of Attorney

27       Financial Data Schedule, which is submitted electronically pursuant to
         Regulation   S-K   to  the  Securities  and  Exchange  Commission  for
         information only and not filed.


   The following is a list of  each management contract or compensatory plan or
arrangement required to be filed as an exhibit to this report.

EXHIBIT
NUMBER

10.2
10.3
10.4
10.5
10.7
10.33

(b)  Reports on Form 8-K filed during the fourth quarter of 1997.

   The Company filed a Current Report  on  Form 8-K on October 8, 1997 relating
to the signing of a letter of intent with a  proposed acquisition.  The Company
subsequently filed a Current Report on Form 8-K on October 29, 1997 to announce
the  termination  of  negotiations  regarding the  proposed  acquisition.   The
Company filed a Current Report on Form 8-K on December 23, 1997 to announce the
signing of the Amended and Restated Agreement  and  Plan  of Merger with Savers
Life.






<PAGE>
                                     SIGNATURES

   Pursuant  to  the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused  this  report to be signed
on its behalf by the undersigned, thereunto duly authorized.

Date: March 26, 1998
                                       STANDARD MANAGEMENT CORPORATION

                                       RONALD        D.        HUNTER

                                       Ronald D. Hunter
                                       Chairman, President and
                                       Chief Executive Officer

   Pursuant to the requirements of the Securities  Exchange  Act  of 1934, this
report  has  been  signed  below on March 26, 1998 by the following persons  on
behalf of the Registrant and in the capacities indicated.

  RONALD D. HUNTER
Ronald D. Hunter           Chairman, President and Chief Executive Officer
                           (Principal Executive Officer)

  *
Paul B. Pheffer                  Director, Executive Vice President,
                           Treasurer and Chief Financial Officer
                           (Principal Financial Officer)

  *
Gerald R. Hochgesang       Senior Vice President -- Finance
                           (Principal Accounting Officer)

  *
Raymond J. Ohlson          Director

  *
Edward T. Stahl            Director

  *
Stephen M. Coons           Director

  *
Martial R. Knieser         Director

  *
Ramesh H. Bhat                   Director

  *
James C. Lanshe                  Director

  *
Robert A. Borns                  Director


John J. Dillon                   Director

  *
Jerry E. Francis                 Director

*By:  /s/ RONALD D. HUNTER
         Ronald D. Hunter
         Attorney-in-Fact

<PAGE>


                          ANNUAL REPORT ON FORM 10-K

                  ITEM 8, ITEM 14(a)(1) AND (2),(c) AND (d)

                 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                         LIST OF FINANCIAL STATEMENTS

                                     and

                        FINANCIAL STATEMENT SCHEDULES

                               CERTAIN EXHIBITS

                        FINANCIAL STATEMENT SCHEDULES

                         Year Ended December 31, 1997

                       STANDARD MANAGEMENT CORPORATION

                            INDIANAPOLIS, INDIANA









<PAGE>
               STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

              INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
                       AND FINANCIAL STATEMENT SCHEDULES

PAGE

AUDITED CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Auditors                                             F-2

Consolidated Balance Sheets as of December 31, 1997 and 1996               F-4

Consolidated Statements of Income for the Years Ended
   December 31, 1997, 1996 and 1995                                        F-5

Consolidated Statements of Shareholders' Equity for the Years Ended
   December 31, 1997, 1996 and 1995                                        F-6

Consolidated Statements of Cash Flows for the Years Ended
   December 31, 1997, 1996 and 1995                                        F-7

Notes to Consolidated Financial Statements                                 F-8

FINANCIAL STATEMENT SCHEDULES

The following consolidated  financial  statement  schedules are included herein
and should be read in
conjunction with the Audited Consolidated Financial Statements.

Schedule II -- Condensed Financial Information of Registrant (Parent Company)
for  the Years Ended December 31,  1997,  1996  and  1995                 F-27

Schedule IV -- Reinsurance for the Years Ended December 31, 1997, 
              1996 and 1995                                               F-31

Schedules not listed above have been omitted because they are not applicable or
are not required, or because  the  required  information  is  included  in  the
Audited Consolidated Financial Statements or Notes thereto.






<PAGE>

                           REPORT OF INDEPENDENT AUDITORS

Shareholders and Board of Directors
Standard Management Corporation

   We  have  audited  the  accompanying consolidated balance sheets of Standard
Management Corporation and subsidiaries  as  of December 31, 1997 and 1996, and
the related consolidated statements of income,  shareholders'  equity  and cash
flows  for  each of the three years in the period ended December 31, 1997.  Our
audits also included  the  financial  statement  schedules listed in the Index.
These  financial  statements  and  schedules  are  the  responsibility  of  the
Company's  management.  Our responsibility is to express an  opinion  on  these
financial statements and  schedules  based  on our audits. We did not audit the
consolidated balance sheets at September 30,  1997 and 1996 or the consolidated
statements of operations, shareholder's equity  and  cash  flows  for the three
years  ended September 30, 1997 of Standard Management International  S.A.  and
subsidiaries,  a  wholly  owned  subsidiary  group,  which financial statements
reflect assets totaling approximately 24% and 23% of the Company's consolidated
assets at December 31, 1997 and 1996 and revenues totaling approximately 9%, 9%
and  12% of consolidated revenues for each of the three  years  in  the  period
ended December 31, 1997. Those financial statements, which as explained in Note
1 are  included  in  the  Company's consolidated balance sheets at December 31,
1997  and  1996,  and  the  Company's   consolidated   statements   of  income,
shareholders'  equity and cash flows for each of the three years in the  period
ended December 31,  1997,  were audited by other auditors whose report has been
furnished to us, and our opinion,  insofar  as  it relates to the data included
for Standard Management International S.A., is based  solely  on  the report of
other auditors.

   We  conducted  our  audits  in  accordance  with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable  assurance  about  whether  the financial  statements  are  free  of
material misstatement. An audit includes  examining,  on a test basis, evidence
supporting the amounts and disclosures in the financial  statements.  An  audit
also   includes  assessing  the  accounting  principles  used  and  significant
estimates  made  by  management,  as  well  as evaluating the overall financial
statement presentation. We believe that our audits  and  the  report  of  other
auditors provide a reasonable basis for our opinion.

   In  our  opinion,  based on our audits and the report of other auditors, the
financial  statements  referred  to  above  present  fairly,  in  all  material
respects,  the  consolidated   financial   position   of   Standard  Management
Corporation  and  subsidiaries  at  December  31,  1997  and  1996,   and   the
consolidated  results  of their operations and their cash flows for each of the
three years in the period  ended December 31, 1997 in conformity with generally
accepted accounting principles.  Also  in  our  opinion,  the related financial
statement  schedules,  when  considered  in  relation  to  the basic  financial
statements  taken  as  a whole, present fairly, in all material  respects,  the
information set forth therein.


                                       Ernst & Young LLP




Indianapolis, Indiana
February 11, 1998



<PAGE>

                           REPORT OF INDEPENDENT AUDITORS

Shareholders and Board of Directors
Standard Management International S.A.

   We  have audited the consolidated  balance  sheets  of  Standard  Management
International  S.A.  and subsidiaries as at September 30, 1997 and 1996 and the
related consolidated statements  of  operations,  shareholder's equity and cash
flows for each of the three years in the period ended  September 30, 1997 (none
of which aforementioned financial statements are separately  presented herein).
These consolidated financial statements are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

   We conducted  our  audits  in  accordance  with  generally accepted auditing
standards in the United States of America. Those standards require that we plan
and  perform  the  audit  to  obtain  reasonable assurance  about  whether  the
financial  statements  are free of material  misstatement.  An  audit  includes
examining, on a test basis,  evidence supporting accounting principles used and
significant estimates made by  management,  as  well  as evaluating the overall
financial  statement  presentation.  We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

   In our opinion the financial statements referred to above present fairly, in
all   material   aspects,  the  consolidated  financial  position  of  Standard
Management International  S.A.  and  subsidiaries  as at September 30, 1997 and
1996, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended September  30,  1997  in conformity
with generally accepted accounting principles in the United States of America.



Luxembourg City, Luxembourg



February 11, 1998
KPMG Audit



<PAGE>
                     STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

                                CONSOLIDATED BALANCE SHEETS
                     (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
                                                                               December 31,
<S>                                                                           <C>                              <C>
                                                                                1997                             1996
                              ASSETS
Investments:
  Securities available for sale:
       Fixed maturity securities, at fair value (amortized cost: 1997 -       $372,576                         $347,310
$367,372; 1996 - $349,151)
      Equity securities, at fair value (cost: 1997 - $55; 1996 - $58)         52                               62
  Mortgage loans on real estate                                               375                              3,035
   Policy loans                                                               9,495                            9,903
  Real estate                                                                 2,163                            546
  Other invested assets                                                       779                              865
  Short-term investments                                                      13,342                           8,417
        Total investments                                                     398,782                          370,138
Cash                                                                          4,165                            5,113
Accrued investment income                                                     6,512                            6,198
Amounts due and recoverable from reinsurers                                   61,596                           68,811
Deferred policy acquisition costs                                             21,435                           18,309
Present value of future profits                                               20,537                           23,806
Excess of acquisition cost over net assets acquired                           2,445                            2,260
Federal income tax recoverable                                                1,854                            2,397
Other assets                                                                  3,602                            2,835
Assets held in separate accounts                                              148,064                          128,546
        Total assets                                                          $668,992                         $628,413
               LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
  Insurance policy liabilities                                                $439,390                         $425,324
  Accounts payable and accrued expenses                                       6,208                            6,249
  Obligations under capital lease                                             141                              637
   Notes payable                                                              26,000                           20,000
   Deferred federal income taxes                                              4,488                            3,206
  Excess of net assets acquired over acquisition cost                         1,388                            2,775
  Liabilities related to separate accounts                                    148,064                          128,546
        Total liabilities                                                     625,679                          586,737

Class S Cumulative Convertible Redeemable Preferred Stock, par value $10 per
share:
  Authorized 300,000 shares; issued and outstanding 159,889 shares in 1996    --                               1,757

Shareholders' Equity:
  Preferred Stock, no par value:
      Authorized 700,000 shares; none issued and outstanding                  --                               --
  Common Stock, no par value:
      Authorized 20,000,000 shares                                            40,646                           40,481
  Treasury stock                                                              (4,572)                          (3,528)
  Unrealized gain (loss) on securities available for sale                     2,171                            (746)
  Foreign currency translation adjustment                                     (473)                            691
  Retained earnings                                                           5,541                            3,021
        Total shareholders' equity                                            43,313                           39,919
        Total liabilities and shareholders' equity                            $668,992                         $628,413
</TABLE>

               See accompanying notes to consolidated financial statements.

<PAGE>
               STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF INCOME
               (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                     Year Ended December 31,
<S>                                                          <C>                        <C>                        <C>
                                                             1997                       1996                       1995
Revenues:
   Premium income                                            $7,100                     $10,468                    $5,504
  Net investment income                                      29,516                     20,871                     18,517
  Net realized investment gains                              396                        1,302                      688
  Gain on disposal of subsidiaries                           --                         886                                     --
  Policy charges                                             5,512                      2,551                      2,467
  Amortization of excess of net assets acquired over         1,388                      1,388                      1,388
  acquisition cost
  Fees from separate accounts                                1,779                      1,564                      1,294
  Other income                                               1,178                      1,277                      380
        Total revenues                                       46,869                     40,307                     30,238
Benefits and expenses:
  Benefits and claims                                        9,098                      9,919                      5,791
  Interest credited on interest-sensitive annuities and
  other                                                      16,281                     11,092                     10,009
      financial products
  Salaries and wages                                         5,608                      5,053                      4,701
  Amortization                                               3,248                      2,592                      2,044
  Other operating expenses                                   6,991                      7,311                      6,019
  Interest expense and financing costs                       2,381                      805                        118
        Total benefits and expenses                          43,607                     36,772                     28,682
Income before federal income taxes, extraordinary gain and
preferred stock                                              3,262                      3,535                      1,556
  dividends
Federal income tax expense (credit)                          617                        (730)                      243
Income before extraordinary gain and preferred stock         2,645                      4,265                      1,313
dividends
Extraordinary gain on early redemption of redeemable
preferred stock,                                             --                         502                        --
  net of $-- federal income tax
Net income                                                   2,645                      4,767                      1,313
Preferred stock dividends                                    97                         208                         --
Earnings available to common shareholders                    $2,548                     $4,559                     $1,313
Earnings per common share:
  Income before extraordinary gain and preferred stock       $           .54            $           .88            $       .25
  dividends
  Extraordinary gain                                         --                         .10                        --
  Net income                                                 .54                        .98                        .25
  Preferred stock dividends                                  .02                        .04                        --
  Earnings available to common shareholders                  $           .52            $           .94            $        .25
Earnings per common share - assuming dilutions:
  Income before extraordinary gain and preferred stock       $           .48            $           .82            $        .25
  dividends
  Extraordinary gain                                         --                         .09                        --
  Net income                                                 .48                        .91                       .25
  Preferred stock dividends                                  .01                        .04                        --
  Earnings available to common shareholders - assuming       $           .47            $           .87            $        .25
  dilutions
</TABLE>

               See accompanying notes to consolidated financial statements.

<PAGE>
               STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
               (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                             Year Ended December 31,
<S>                                           <C>            <C>            <C>             <C>           <C>            <C>
                                                             Amounts                                   Number of Shares
                                                 1997           1996           1995              1997          1996           1995
Common Stock:
  Balance, beginning of year                  $40,481        $39,808        $39,695         5,752,499     5,459,573      5,457,906
       Issuance of common stock                    --            100             --                --        20,000             --
       5% common stock dividend                    --            850             --                --       272,926             --
       Issuance of common stock warrants          165            285            107                --            --             --
       Repurchase of common stock warrants         --           (600)            --                --            --             --
       Gain on reissuance of treasury stock
       in connection                               --             38             --                --            --             --
         with purchase of Shelby Life
       Issuance of common stock in
       connection with                             --             --              6                --            --          1,667
         exercise of stock options
  Balance, end of year                         40,646         40,481         39,808         5,752,499     5,752,499      5,459,573
Treasury stock, at cost:
  Balance, beginning of year                   (3,528)        (2,621)        (2,221)         (728,229)     (502,025)      (418,425)
       Treasury stock acquired                 (1,079)        (2,126)          (400)         (154,903)     (431,026)       (83,600)
       5% common stock dividend                    --             --             --                --       (46,402)            --
       Reissuance of treasury stock in
       connection with                             35              6             --             7,123         1,224             --
         exercise of stock options
       Reissuance of treasury stock in
       connection with                             --          1,213             --                --       250,000             --
        purchase of Shelby Life
  Balance, end of year                         (4,572)        (3,528)        (2,621)         (876,009)     (728,229)      (502,025)
Unrealized gain (loss) on securities:
  Balance, beginning of year                     (746)         2,582        (13,411)
       Change in unrealized gain (loss) on
       securities                               2,917         (3,328)        15,993
         available for sale, net
  Balance, end of year                          2,171           (746)         2,582
Foreign currency translation adjustments:
  Balance, beginning of year                      691          1,159            546
       Translation adjustments for the year    (1,164)          (468)           613
  Balance, end of year                           (473)           691          1,159
Retained earnings (deficit):
  Balance, beginning of year                    3,021           (686)        (1,999)
       Net income                               2,645          4,767          1,313
       5% common stock dividend, plus cash
       in lieu of                                  --           (850)            --
         fractional shares
       Loss on reissuance of treasury stock       (28)            (2)            --
       Preferred stock dividend                   (97)          (208)            --
  Balance, end of year                          5,541          3,021           (686)
Total shareholders' equity and common shares  $43,313        $39,919        $40,242         4,876,490     5,024,270 4,957,548
outstanding
</TABLE>


                    SEE    ACCOMPANYING   NOTES   TO   CONSOLIDATED   FINANCIAL
STATEMENTS.
<PAGE>
               STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                      Year Ended December 31,
<S>                                                                   <C>                       <C>                       <C>
                                                                         1997                      1996                      1995
OPERATING ACTIVITIES
Net income                                                             $2,645                    $4,767                    $1,313
Adjustments to reconcile net income to net cash provided by
operating activities:
  Amortization of deferred policy acquisition costs                     1,456                     1,221                     1,142
  Policy acquisition costs deferred                                   (7,005)                   (6,400)                   (1,863)
  Deferred federal income taxes                                         1,187                       158                       353
  Depreciation and amortization                                         1,085                       544                        78
  Insurance policy liabilities                                          9,441                     4,785                     6,273
  Net realized investment gains                                         (396)                   (1,302)                     (688)
  Accrued investment income                                             (314)                     (770)                       347
  Extraordinary gain on early redemption of redeemable                     --                     (502)                        --
preferred stock
   Other                                                                (335)                     (775)                     (624)
          Net cash provided by operating activities                     7,764                     1,726                     6,331
FINANCING ACTIVITIES
Issuance of Common Stock, net                                              --                        --                         6
Borrowings, net of debt issuance costs of $70 in 1997, $208 in          5,558                    16,792                     2,923
1996 and $81 in 1995
Repayments on long-term debt and obligations under capital              (543)                     (491)                     (353)
lease
Short-term borrowings, net                                                 --                        --                     (550)
Premiums received on interest-sensitive annuities and other
financial products credited                                            49,362                    42,347                    17,524
  to policyholder account balances, net of premiums ceded
Return of policyholder account balances on interest-sensitive
annuities and other                                                  (37,477)                  (17,356)                  (17,852)
  financial products, net of premiums ceded
Redemption of redeemable preferred stock                              (1,855)                     (949)                        --
Repurchase of Common Stock warrants                                        --                     (600)                        --
Proceeds from common and treasury stock sales                             138                       100                        --
Purchase of Common Stock for treasury                                 (1,079)                   (2,126)                     (400)
         Net cash provided by financing activities                     14,104                    37,717                     1,298
INVESTING ACTIVITIES
Fixed maturity securities available for sale:
   Purchases                                                        (205,976)                 (249,638)                 (183,183)
  Sales                                                               161,891                   194,244                   191,477
  Maturities, calls and redemptions                                    28,380                    10,254                     7,812
Short-term investments, net                                           (4,925)                    11,890                  (21,662)
Other investments, net                                                (2,186)                     (551)                     4,082
Proceeds from sale of property and equipment under capital                 --                        --                     1,396
lease
Purchase of Shelby Life Insurance Company, less cash acquired              --                  (14,618)                        --
of $32
Dividends paid by Shelby Life Insurance Company to former                  --                   (3,000)                        --
parent
Purchase of Dixie National Life Insurance Company, less cash               --                        --                   (3,393)
acquired of $4,626
Proceeds from sale of First International Life Insurance
Company, less cash transferred                                             --                    11,327                        --
  to seller of $265
         Net cash used by investing activities                       (22,816)                  (40,092)                   (3,471)
Net increase (decrease) in cash                                         (948)                     (649)                     4,158
Cash at beginning of year                                               5,113                     5,762                     1,604
Cash at end of year                                                    $4,165                    $5,113                    $5,762
</TABLE>

                    See   accompanying    notes   to   consolidated   financial
statements.
<PAGE>

                       STANDARD MANAGEMENT CORPORATION AND SUBSIDIARIES

                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               DECEMBER 31, 1997


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

   Standard  Management  Corporation  ("SMC")  is  an  international  financial
services holding company, which directly  and through its subsidiaries acquires
and  manages  in  force  life insurance and annuity  business  and  issues  and
distributes  life insurance  and  annuity  products.   SMC  offers  unit-linked
assurance products through its international subsidiaries.

   SMC's active  subsidiaries  at  December 31, 1997 include: (i) Standard Life
Insurance  Company  of Indiana ("Standard  Life")  and  its  subsidiary,  Dixie
National  Life  Insurance   Company  ("Dixie  National  Life"),  (ii)  Standard
Management International S.A.  ("Standard  Management  International")  and its
subsidiaries, Premier Life (Luxembourg) S.A. ("Premier Life (Luxembourg)")  and
Premier  Life  (Bermuda)  Ltd.  ("Premier  Life  (Bermuda)") and (iii) Standard
Marketing Corporation ("Standard Marketing").

BASIS OF PRESENTATION

   The  accompanying  consolidated  financial  statements   of   SMC   and  its
subsidiaries  (the  "Company")  have been prepared in conformity with generally
accepted accounting principles ("GAAP") and include the accounts of SMC and its
majority-owned subsidiaries since acquisition or organization.  All significant
intercompany balances and transactions have been eliminated.

   The fiscal year end for Standard  Management  International is September 30.
To facilitate reporting on the consolidated level,  the  fiscal  year  end  for
Standard  Management International was not changed and the consolidated balance
sheets and  statements  of  operations for Standard Management International at
September 30, 1997 and 1996 and for each of the three years in the period ended
September 30, 1997, are included  in  the Company's consolidated balance sheets
at December 31, 1997 and 1996 and for each  of  the  three  years in the period
ended December 31, 1997.

USE OF ESTIMATES

   The nature of the Company's insurance businesses requires management to make
estimates and assumptions that affect the amounts reported in  the consolidated
financial  statements  and  accompanying notes. Such estimates and  assumptions
could change in the future as  more  information  becomes  known,  which  could
impact the amounts reported and disclosed herein.

INVESTMENTS

   The Company classifies its fixed maturity and equity securities as available
for  sale  and,  accordingly,  such securities are carried at fair value. Fixed
maturity securities include bonds  and  redeemable preferred stocks. Changes in
fair values of securities available for sale,  after  adjustment  for  deferred
policy  acquisition  costs, present value of future profits and deferred income
taxes, are reported as  unrealized  gains  or  losses directly in shareholders'
equity  and,  accordingly, have no effect on net income.  The  deferred  policy
acquisition costs  and  present  value  of  future  profits  adjustments to the
unrealized gains or losses represent valuation adjustments or reinstatements of
these assets that would have been required as a charge or credit  to operations
had such unrealized amounts been realized.

   The  cost  of  fixed  maturity  securities  is adjusted for amortization  of
premiums and discounts. The amortization is provided  on  a  constant effective
yield method over the life of the securities and is included in  net investment
income.

   Mortgage-backed  and  other collateralized securities, classified  as  fixed
maturity  securities  in  the  balance  sheet,  are  comprised  principally  of
obligations backed by an agency  of  the  United  States  government  (although
generally  not  by  the full faith and credit of the United States government).
The Company has reduced  the risk normally associated with these investments by
primarily investing in highly  rated  securities and in those that provide more
predictable prepayment patterns. The income from these securities is recognized
using  a constant effective yield based  on  anticipated  prepayments  and  the
estimated  economic  life  of  the  securities.  When actual prepayments differ
significantly from anticipated prepayments, the income  recognized  is adjusted
currently to match that which would have been recorded had the effective  yield
been applied since the acquisition of the security. This adjustment is included
in net investment income.
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


   Mortgage  loans  on  real  estate  and  policy  loans  are carried at unpaid
principal  balances and are generally collateralized. Real estate  investments,
which the Company  has  the  intent  to  hold for the production of income, are
carried  at  cost, less accumulated depreciation.  Short-term  investments  are
carried at amortized cost, which approximates fair value.

NET REALIZED INVESTMENT GAINS OR LOSSES

   Net realized  investment  gains and losses are calculated using the specific
identification method and included  in  the  consolidated statements of income.
If  the  values  of investments decline below their  amortized  cost  and  this
decline is considered  to  be other than temporary, the amortized cost of these
investments is reduced to net realizable value and the reduction is recorded as
a realized loss.

FUTURE POLICY BENEFITS

   Liabilities for future policy  benefits for deferred annuities and universal
life policies are equal to full account  value that accrues to the policyholder
(cumulative premiums less certain charges,  plus  interest credited) with rates
ranging from 4.5% to 12% in 1997 and 4.5% to 9% in 1996.

   Future policy benefits for traditional life insurance contracts are computed
using the net level premium method on the basis of  assumed  investment yields,
mortality and withdrawals which were appropriate at the time the  policies were
issued. Assumed investment yields are based on interest rates ranging from 6.5%
to  7.5%.  Mortality  is  based upon various actuarial tables, principally  the
1965-1970  Select  and Ultimate  Table.  Withdrawals  are  based  upon  Company
experience and vary by issue age, type of coverage, and duration.

RECOGNITION OF INSURANCE POLICY REVENUE AND RELATED BENEFITS AND EXPENSES

   Revenue for interest-sensitive  annuity contracts consists of policy charges
for  surrenders  and investment income  earned.  Premiums  received  for  these
annuity contracts  are  reflected  as  premium deposits and are not recorded as
revenues.  Expenses related to these annuities  include  interest  credited  to
policyholder  account  balances.  Revenue for universal life insurance policies
consists of policy charges for the  cost  of  insurance,  policy administration
charges,  surrender  charges  and investment income earned during  the  period.
Expenses  related  to universal life  policies  include  interest  credited  to
policyholder  account  balances  and  death  benefits  incurred  in  excess  of
policyholder account balances.

   Traditional  life insurance and immediate annuity premiums are recognized as
premium revenue when  due  over  the  premium  paying  period  of the policies.
Benefits are charged to expense in the period when claims are incurred  and are
associated  with related premiums through changes in reserves for future policy
benefits which  results  in  the  recognition of profit over the premium paying
period of the policies.

REINSURANCE

   Premiums, annuity policy charges, benefits and claims, interest credited and
amortization  expense  are  reported  net  of  reinsurance  ceded.  Reinsurance
premiums, annuity policy charges, benefits  and  claims,  interest credited and
amortization expense are accounted for on bases consistent  with  those used in
accounting  for  the  original policies issued and the terms of the reinsurance
contracts.

SEPARATE ACCOUNTS

   Separate accounts are  maintained  primarily  for  universal  life contracts
written  by  Standard Management International of which the majority  represent
unit-linked  business   where  benefits  on  surrender  and  maturity  are  not
guaranteed and investment  contracts under which fixed benefits are paid to the
policyholder and the terms of  which  are  such  that  there  is  little  or no
mortality  risk.  Separate  accounts  generally  represent  funds maintained in
accounts to meet specific investment objectives of policyholders  who  bear the
investment  risk. The Company records the related liabilities at amounts  equal
to the underlying  assets.   Investment  income and investment gains and losses
accrue  directly  to  such  policyholders.  The  assets  of  each  account  are
segregated and are not subject to claims that  arise  out of any other business
of the Company. Deposits, net investment income and realized  gains  and losses
on separate accounts assets are not reflected in the consolidated statements of
income.

FOREIGN CURRENCY TRANSLATION

   The Company's foreign subsidiaries' balance sheets and statements of  income
are  translated  at  the year end exchange rates and average exchange rates for
the year, respectively.  The  resulting unrealized gain or loss adjustment from
the translation to U.S. dollars is recorded in the foreign currency translation
adjustment as a separate component  of  shareholders' equity. Other translation
adjustments for foreign exchange gains or  losses  have  been  reflected in the
consolidated statements of income. Foreign exchange gains or losses relating to
policyholders'  funds  in  separate  accounts  are  allocated  to  the relevant
separate account.
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


INCOME TAXES

   Deferred tax assets and liabilities are recognized for the estimated  future
tax  consequences  attributable  to differences between the financial statement
carrying amounts of existing assets  and  liabilities  and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
in effect for the year in which those temporary differences  are expected to be
recovered  or settled. The effect on deferred tax assets and liabilities  of  a
change in tax  rates  is recognized in income in the period in which the change
is enacted.

   Standard Life and Dixie  National  Life  filed  separate  federal income tax
returns  for  1996  and  prior years and were taxed as separate life  insurance
companies. For 1997 and subsequent years, Standard Life and Dixie National Life
plan to file a life/life consolidated  return.   SMC,  Standard  Marketing  and
other  U.S.  non-insurance  subsidiaries  are taxed as regular corporations and
file a consolidated return. SMC and its U.S.  non-insurance  subsidiaries  were
eligible to consolidate with Standard Life for income tax purposes beginning in
1996, but do not currently plan to do so.

   Standard  Management  International  is incorporated as a holding company in
the Grand Duchy of Luxembourg and, accordingly,  is  not  currently  subject to
taxation  on  income  or  capital  gains. Standard Management International  is
subject to an annual capital tax which  is  calculated  on the nominal value of
the  statutory  shareholder's  equity at an annual rate of .20%.  Premier  Life
(Luxembourg) is a normal commercial  taxable  company  and is subject to income
tax at regular corporate rates (statutory corporate rate of 39.39%), and annual
capital  taxes  amounting to approximately 1% of its net equity.  Premier  Life
(Bermuda) is exempt  from  taxation  on  income  until March 2016 pursuant to a
decree from the Minister of Finance in Bermuda. To  the extent that such income
is taxable under U.S. law, such income will be included  in  SMC's consolidated
return.

PRESENT VALUE OF FUTURE PROFITS

   Present value of future profits is recorded in connection with  acquisitions
of  insurance companies or a block of policies. The initial value is  based  on
the actuarially  determined present value of the projected future gross profits
from  the in-force  business  acquired.  In  selecting  the  interest  rate  to
calculate  the  discounted present value of the projected future gross profits,
the Company uses  the  risk  rate  of  return  believed  to  best  reflect  the
characteristics  of  the  purchased  policies, taking into account the relative
risks of such policies, the cost of funds  to  acquire  the  business and other
factors. The value of insurance in force purchased is amortized  on  a constant
yield  basis  over the estimated life of the insurance in force at the date  of
acquisition in  proportion  to  the  emergence  of  profits  over  a  period of
approximately  20  years.  For  acquisitions  the  Company  made  on  or before
November  19,  1992, the Company amortizes the asset with interest at the  same
discount rate used  to determine the present value of future profits at date of
purchase. For acquisitions  after November 19, 1992, including the acquisitions
of Dixie National Life and Shelby  Life,  the Company amortizes the asset using
the interest rate credited to the underlying policies.

DEFERRED POLICY ACQUISITION COSTS

   Costs relating to the production of new business  (primarily commissions and
certain costs of marketing, policy issuance  and underwriting) are deferred and
included in the deferred policy acquisition cost  asset to the extent that such
costs   are   recoverable   from   future   related   policy   revenues.    For
interest-sensitive  annuities  and  other  financial  products, deferred policy
acquisition costs, with interest, are amortized over the  lives of the policies
and  products  in  a  constant relationship to the present value  of  estimated
future gross profits, discounted  using  the  interest  rate  credited  to  the
policy.  Traditional life insurance deferred policy acquisition costs are being
amortized  over  the  premium-paying  period  of  the  related  policies  using
assumptions consistent with those used in computing policy benefit reserves.

   The Company reviews the recoverability of the carrying value of the deferred
policy  acquisition costs each year. For interest-sensitive annuities and other
financial  products,  the  Company  considers estimated future gross profits in
determining whether the carrying value  is  appropriate;  for  other  insurance
products,  the  Company considers estimated future premiums. In all cases,  the
Company considers  expected  mortality,  interest  earned  and crediting rates,
persistency   and  expenses.  Amortization  is  adjusted  retrospectively   for
interest-sensitive  annuities  and  other  financial products when estimates of
future gross profits to be realized are revised.

EXCESS OF ACQUISITION COST OVER NET ASSETS ACQUIRED

   The excess of the cost to acquire purchased companies over the fair value of
net assets acquired is being amortized on a  straight-line  basis  over periods
that  generally  correspond  with the benefits expected to be derived from  the
acquisitions, usually 20 to 40 years. Accumulated amortization was $428,000 and
$314,000 at December 31, 1997  and 1996, respectively.  The Company continually
monitors the value of excess of  acquisition  cost  over  net  assets  acquired
("goodwill")  based  on  estimates  of  future  earnings. If it determines that
goodwill has been impaired, the carrying value is  reduced with a corresponding
charge to expense.

<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


EXCESS OF NET ASSETS ACQUIRED OVER ACQUISITION COST

   The  excess of the net assets acquired over the cost  to  acquire  purchased
companies  ("negative  goodwill"),  after  reducing  the  basis in property and
equipment and other noncurrent assets to zero, is being amortized into earnings
on a straight-line basis over a five year period.  Accumulated amortization was
$5,227,000 and $3,839,000 at December 31, 1997 and 1996, respectively.

STOCK OPTIONS

   The Company recognizes compensation expense for its stock  option plan using
the  intrinsic  value  method  of accounting. Under the terms of the  intrinsic
value method, compensation cost  is  the  excess,  if any, of the quoted market
price  of  the  stock at the grant date, or other measurement  date,  over  the
amount an employee  must  pay  to  acquire the stock. Under the Company's stock
option plans, no expense is recognized  since  the  exercise  price  equals  or
exceeds the market price at the measurement date.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

   In  February  1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial  Accounting  Standards  ("SFAS")  No. 128, "Earnings Per
Share."  The Company adopted SFAS No. 128 on December 31,  1997.   All earnings
per  share  amounts for all periods presented have been restated to conform  to
the SFAS No.  128  requirements.   SFAS  No. 128 eliminates the presentation of
primary  earnings per share and replaces it  with  basic  earnings  per  share.
Basic earnings per share differs from primary earnings per share because common
stock equivalents  are  not  considered  in computing basic earnings per share.
Fully diluted earnings per share are replaced  with diluted earnings per share.
Diluted  earnings  per share is similar to fully diluted  earnings  per  share,
except in determining the number of dilutive shares outstanding for options and
warrants, the proceeds  that  would  be  received  upon  the  conversion of all
dilutive  options  and  warrants  are  assumed  to  be  used to repurchase  the
Company's common shares at the average market price of such  stock  during  the
period.  For fully diluted earnings per share, the higher of the average market
price or ending market price was used.

   In  June  1997,  the  FASB  issued  SFAS  No.  130, "Reporting Comprehensive
Income."   SFAS No. 130 defines the financial statement  presentation  for  all
changes in a  company's  equity  during  a  period  except those resulting from
investments by owners and distributions to owners.  SFAS  No.  130 is effective
for financial statements issued for fiscal years beginning after  December  15,
1997  and will be adopted by the Company in the first quarter of 1998.  Because
the statement  is  merely a change in presentation, the Company does not expect
the adoption of this  statement to have any impact on the amount of net income,
earnings per share or total shareholders' equity.

   In June 1997, the FASB  issued  SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information."   SFAS  No.  131 supersedes SFAS No. 14
"Financial  Reporting  for  Segments  of  a  Business Enterprise"  and  defines
financial and descriptive information about a company's operating segments that
is to be disclosed in financial statements.  SFAS  No.  131  is  effective  for
financial  statements issued for fiscal years beginning after December 15, 1997
and will be  adopted  by the Company in 1998.  Currently, the Company considers
its life insurance operations  to  be its only material operating segment.  The
Company  is  in  the  process  of defining  additional  business  segments  and
developing allocation methods to assess their performance.  Once the process is
completed, additional disclosures  will be provided in accordance with SFAS No.
131.

RECLASSIFICATIONS

   Certain amounts in the 1996 and 1995  consolidated  financial statements and
notes  have  been  reclassified  to  conform with the 1997 presentation.  These
reclassifications had no effect on previously  reported shareholders' equity or
net income during the periods involved.


2. ACQUISITIONS AND DISPOSALS

   On  November  8,  1996, Standard Life acquired through  merger  Shelby  Life
Insurance Company ("Shelby  Life")  from  Delta  Life  and  Annuity Corporation
("DLAC"), a life insurance company located in Memphis, Tennessee  (the  "Shelby
Merger").   The   purchase   price  was  approximately  $14,650,000,  including
$13,000,000 in cash, 250,000 shares  of  restricted  Common  Stock  (valued  at
$1,250,000) and acquisition costs of $400,000.  Financing for the Shelby Merger
was  provided  by  senior  debt  of  $10,000,000 and $4,000,000 in subordinated
convertible debt.

   The acquisition of Shelby Life was  accounted  for using the purchase method
of accounting and the consolidated financial statements  include the results of
Shelby  Life  from  November 1, 1996, the effective date of acquisition.  Under
purchase accounting, Standard Life allocated the total purchase price of Shelby
Life to the assets and  liabilities acquired, based on a determination of their
fair values and recorded  the  excess  of  acquisition  cost  over  net  assets
acquired  as  goodwill,  which  will be amortized on a straight-line basis over
20 years.
<PAGE>
2. ACQUISITIONS AND DISPOSALS (CONTINUED)


   The following schedule summarizes  the  assets  acquired and the liabilities
assumed with the Shelby Life acquisition described above (in thousands):

         Assets acquired:
            Fixed maturity securities                 $   93,376  Policy  loans
2,430       Short term investments                       4,725  Cash 32 Present
value of future profits                                  7,998   Other   assets
2,880
               Total assets acquired                   111,441

         Liabilities assumed:
            Policy reserves                             92,322
            Deferred federal income taxes                  376
            Other liabilities                            1,102
            Dividends payable to DLAC                    3,000
               Total liabilities assumed                96,800

         Net assets acquired                            14,641
         Excess of acquisition cost over net assets acquired             9
         Total purchase price                         $ 14,650

      The  following are supplemental unaudited pro forma consolidated  results
of operations  of  the  Company  for  year  ended  December  31, 1996 as if the
acquisition  for Shelby Life had occurred at January 1, 1996 presented  at  the
same purchase  price, based on estimates and assumptions considered appropriate
(in thousands).

         Revenues                                    $49,344
         Income before extraordinary gain              4,242
         Net income                                    4,536
         Earnings per share:
            Income before extraordinary gain             .83
            Net income                                   .89
         Earnings per share, assuming dilution:
            Income before extraordinary gain             .73
            Net income                                   .82


   The above amounts are based upon certain assumptions and estimates which the
Company believes  are  reasonable  and  do not reflect any benefit from savings
which  might  be achieved from combined operations.  The  unaudited  pro  forma
results do not  necessarily  represent results which would have occurred if the
acquisitions  had  taken  place on  the  basis  assumed  above,  nor  are  they
indicative of the results of future combined operations.

   On October 2, 1995, Standard  Life  completed  its  acquisition  of 99.3% of
Dixie  National  Life from Dixie National Corporation ("DNC"), a life insurance
holding company located  in Jackson, Mississippi. Dixie National Life markets a
variety of life insurance  products throughout the Mid-South offering primarily
"burial expense" policies. The  purchase  price was $8,019,000, including costs
of $684,000, the forgiveness of a $3,689,000  DNC note payable to Standard Life
and a $1,720,000 repayment of a DNC note payable.  The remaining purchase price
of $1,926,000 was paid in cash from internally generated funds.

   The acquisition was accounted for using the purchase  method  of  accounting
and the consolidated financial statements include the results of Dixie National
Life  from  the  date of acquisition. Under purchase accounting, Standard  Life
allocated the total  purchase  price  of  Dixie National Life to the assets and
liabilities acquired, based on a determination  of  their fair values. Standard
Life recorded goodwill of $1,589,000 which will be amortized on a straight-line
basis over 40 years.

   On March 18, 1996, Standard Life completed the sale  of  a duplicate charter
associated   with   First   International   Life   Insurance   Company  ("First
International") to The Guardian Insurance and Annuity Company, Inc. ("GIAC"), a
subsidiary of The Guardian Group, New York, NY. Standard Life received proceeds
of approximately $10,393,000, including $1,500,000 for the charter and licenses
associated with First International. Standard Life realized a net  pretax  gain
of $1,042,000 and a tax benefit of $1,420,000 on this sale, or $2,462,000.   In
addition,  First  International,  Standard  Life  and  GIAC have entered into a
series of reinsurance and other agreements that include provisions for Standard
Life to administer First International policies in force  at  the date of sale,
and  for  Standard Life to continue to receive the profit stream  from  certain
First International policies in force at the date of such sale (SEE NOTE 9).
<PAGE>
2. ACQUISITIONS AND DISPOSALS (CONTINUED)


   SMC decided  in February 1996 to terminate the reinsurance agreement between
Standard  Reinsurance  of  North  America  Ltd.  ("Standard  Reinsurance")  and
Salamandra  Joint-Stock Insurance Company in Ukraine ("Salamandra"), and to not
renew the Barbados  license  of  Standard  Reinsurance.  This  resulted  in the
termination  of  Standard  Reinsurance  operations  and  the write-off of SMC's
investment in Standard Reinsurance and certain intangible  assets  of  Standard
Reinsurance amounting to $156,000.

3. INVESTMENTS

   The amortized cost, gross unrealized gain (loss) and estimated fair value of
securities available for sale are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                            December 31, 1997
<S>                                             <C>                       <C>                   <C>                   <C>
                                                                       Gross                  Gross
                                             Amortized              Unrealized             Unrealized                Fair
                                               Cost                    Gain                  (Loss)                  Value
Securities available for sale:
     Fixed maturity securities:
         United States Treasury
securities and
           obligations of United States         $27,613                    $174                   $(90)               $27,697
           government agencies
         Obligations of states and
political                                         3,790                     204                    (26)                 3,968
           subdivisions
         Foreign government securities           30,558                     497                 (3,296)                27,759
          Utilities                              26,606                     534                   (109)                27,031
         Corporate bonds                        223,958                   8,140                 (1,609)               230,489
         Mortgaged-backed securities             51,266                     657                    (60)                51,863
         Redeemable preferred stock               3,581                     188                     --                  3,769
           Total fixed maturity                 367,372                  10,394                 (5,190)               372,576
securities
     Equity securities                               55                      --                     (3)                    52
         Total securities available for        $367,427                 $10,394                $(5,193)              $372,628
sale
                                                                            December 31, 1996
                                                                       Gross                  Gross
                                             Amortized              Unrealized             Unrealized                Fair
                                               Cost                    Gain                  (Loss)                  Value
Securities available for sale:
     Fixed maturity securities:
         United States Treasury
securities and
           obligations of United States         $20,753                     $51                  $(420)               $20,384
           government agencies
         Obligations of states and
political                                         3,588                     106                     --                  3,694
           subdivisions
         Foreign government securities           10,042                      51                   (166)                 9,927
         Utilities                               31,000                     295                   (675)                30,620
         Corporate bonds                        210,977                   3,086                 (3,539)               210,524
         Mortgaged-backed securities             72,264                     247                   (919)                71,592
         Redeemable preferred stock                 527                      42                     --                    569
           Total fixed maturity                 349,151                   3,878                 (5,719)     347,310
securities
     Equity securities                               58                       4                     --                     62
         Total securities available for        $349,209                  $3,882                $(5,719)          $347,372
sale
</TABLE>

   The estimated fair values for fixed maturity securities are based on  quoted
market  prices,  where  available.  For  fixed maturity securities not actively
traded,  fair  values  are  estimated using values  obtained  from  independent
pricing services, or by discounting  expected future cash flows using a current
market  rate  applicable  to  the coupon rate,  credit,  and  maturity  of  the
investments.
<PAGE>
3. INVESTMENTS (CONTINUED)


   The amortized cost and estimated  fair value of fixed maturity securities at
December  31, 1997 by contractual maturity  are  shown  below  (in  thousands).
Actual maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or prepayment
penalties and  because  most  mortgage-backed  securities  provide for periodic
payments throughout their lives.

                                                     Amortized             Fair
<TABLE>
<CAPTION>
                                                       COST                VALUE
<S>                                                <C>               <C>

Due in one year or less                            $     4,560       $     4,551
Due after one year through five years                   31,597            32,048
Due after five years through ten years                 141,806           140,972
Due after ten years                                    134,562           139,373
   Subtotal                                            312,525           316,944
Redeemable preferred stock                               3,581             3,769
Mortgage-backed securities                              51,266            51,863
   Total fixed maturity securities                   $ 367,372         $ 372,576

</TABLE>
      The  Company  maintains  a highly-diversified investment  portfolio  with
limited concentration of financial instruments in any given region, industry or
economic  characteristic. Investments  in  any  entity  in  excess  of  10%  of
shareholders'  equity  at December 31, 1997, other than asset-backed securities
and  investments  issued or  guaranteed  by  the  U.S.  government  or  a  U.S.
government agency,  all  of  which were classified as fixed maturity securities
available for sale, were as follows (in thousands):

                                                     Amortized             Fair
<TABLE>
<CAPTION>
INVESTMENT                                             COST                VALUE
<S>                                                <C>                 <C>

Continental Cablevision                            $  5,302            $  5,509
AMERCO                                                4,994               5,042
Eastern Energy Limited                                4,975               5,068
Republic of Indonesia                                 4,636               3,596


</TABLE>
      Net investment income was attributable to the following (in thousands):

<TABLE>
<CAPTION>
                                                                               Year Ended December 31,
<S>                                                  <C>                         <C>                         <C>
                                                     1997                        1996                        1995
Fixed maturity securities                            $27,151                     $19,865                     $17,457
Mortgage loans on real estate                        123                         309                         152
Policy loans                                         618                         447                         305
Real estate                                          58                          65                          120
Short-term investments and other                     2,098                       602                         990
     Gross investment income                         30,048                      21,288                      19,024
Investment expenses                                  532                         417                         507
     Net investment income                           $29,516                     $20,871                     $18,517
</TABLE>


      Net realized investment gains arose from the following (in thousands):
<TABLE>
<CAPTION>
                                                                               Year Ended December 31,
<S>                                                  <C>                         <C>                         <C>
                                                     1997                        1996                        1995
Fixed maturity securities available for sale:
     Gross realized gains                            $2,181                      $2,012                      $2,115
     Gross realized losses                           1,695                       911                         1,662
         Net                                         486                         1,101                       453
Real estate                                          26                          --                          124
Other gains (losses)                                 (116)                       201                         111
     Net realized investment gains                   $396                        $1,302                      $688
</TABLE>
<PAGE>
3.    INVESTMENTS (CONTINUED)


      Life insurance companies  are  required  to  maintain  certain amounts of
assets with state or other regulatory authorities. At December  31,  1997 fixed
maturity  securities  of  $12,658,000  and short-term investments of $1,498,000
were held on deposit by various state regulatory authorities in compliance with
statutory regulations. Additionally, fixed  maturity securities of $851,000 and
short-term investments of $3,590,000 of Standard  Management International were
held by a custodian bank approved by the Luxembourg  regulatory  authorities to
comply with local insurance laws.


4.    DEFERRED POLICY ACQUISITION COSTS AND PRESENT VALUE OF FUTURE PROFITS

      The activity related to the deferred policy acquisition costs of business
produced is summarized as follows (in thousands):
<TABLE>
<CAPTION>
                                                                               Year Ended December 31,
<S>                                                  <C>                         <C>                         <C>
                                                     1997                        1996                        1995
Balance, beginning of year                           $18,309                     $10,054                     $12,206
     Additions                                       7,005                       6,400                       1,863
     Amortization                                    (1,456)                     (1,221)                     (1,142)
     Adjustment relating to net unrealized (gain)
     loss on                                         (2,423)                     3,076                       (2,873)
         securities available for sale
Balance, end of year                                 $21,435                     $18,309                     $10,054
</TABLE>

                                                                  The  activity
related  to  the  present  value of future profits of the business acquired  is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
                                                                               Year Ended December 31,
<S>                                                  <C>                         <C>                         <C>
                                                     1997                        1996                        1995
Balance, beginning of year                           $23,806                     $15,246                     $8,299
      Amounts related to acquisitions and disposals  (1,374)                     9,615                       7,901
      Interest accreted on unamortized balance       3,178                       2,563                       1,566
      Gross amortization during the year             (4,844)                     (3,812)                     (2,346)
      Adjustments relating to net unrealized (gain)
      loss on securities available for sale          (229)                       194                         (174)
Balance, end of year                                 $20,537                     $23,806                     $15,246
</TABLE>

      The percentages of future  expected  net  amortization  of  the beginning
balance  of  the  present  value  of  future  profits before the effect of  net
unrealized gains and losses, based on the present  value  of  future profits at
December 31, 1997 and current assumptions as to future events on  all  policies
in force, will be between 6% and 8% in each of the years 1998 through 2002.

      The  discount  rate used to calculate the present value of future profits
reflected in the Company's  consolidated  balance  sheets at December 31, 1997,
ranged from 7.5% to 18%. The Company used a 15% discount  rate to calculate the
present  value  of  future profits on the Shelby Life and Dixie  National  Life
acquisitions.


5.    NOTES PAYABLE

      SMC has outstanding  borrowings  at  December  31,  1997  pursuant  to an
Amended  Revolving  Line  of  Credit Agreement with a bank (the "Amended Credit
Agreement") that provides for it  to  borrow up to $16,000,000 in the form of a
seven-year reducing revolving loan arrangement. SMC has agreed to pay a non-use
fee of .50% per annum on the unused portion  of  the  commitment. In connection
with the original and Amended Credit Agreement, SMC issued warrants to the bank
to purchase 61,500 shares of Common Stock. Borrowings under  the Amended Credit
Agreement  may be used for contributions to surplus of insurance  subsidiaries,
acquisition  financing,  and  repurchases  of  Class  S  Cumulative Convertible
Redeemable Preferred Stock ("Class S Preferred Stock") and  Common  Stock.  The
debt  is  secured  by  a  Pledge Agreement of all of the issued and outstanding
shares of common stock of Standard Life and Standard Marketing. Interest on the
borrowings under the Amended  Credit  Agreement is determined, at the option of
SMC,  to be: (i) a fluctuating rate of interest  to  the  corporate  base  rate
announced  by  the  bank from time to time plus 1% per annum, or (ii) a rate at
LIBOR plus 3.25%. Annual  principal  repayments of $2,667,000 begin in November
1998 and conclude in November 2003. Indebtedness  incurred  under  the  Amended
Credit  Agreement  is  subject to certain restrictions and covenants including,
among other things, certain minimum financial ratios, minimum consolidated
<PAGE>
5.    NOTES PAYABLE (CONTINUED)


equity requirements for  SMC,  positive  net  income, minimum statutory surplus
requirements for the Company's insurance subsidiaries  and  certain limitations
on acquisitions, additional indebtedness, investments, mergers,  consolidations
and  sales of assets. At December 31, 1997, SMC had borrowed $16,000,000  under
this Amended Credit Agreement at a weighted average interest rate of 9.069%.

      In   connection  with  the  acquisition  of  Shelby  Life,  SMC  borrowed
$4,000,000 from  an  insurance  company  pursuant to a subordinated convertible
debt  agreement  which  was  due in December 2003.   At  June  30,  1997,  this
subordinated convertible debt  agreement was amended to the principal amount of
$4,372,000 which is due July 2004  unless  previously  converted,  and requires
interest  payments  in  cash  on  January 1 and July 1 of each year at 10%  per
annum.   At  June  30, 1997, SMC borrowed  an  additional  $5,628,000  from  an
insurance company pursuant  to  another subordinated convertible debt agreement
(collectively, the "Notes") which is due July 2004 unless previously converted,
and requires interest payments in  cash on January 1 and July 1 of each year at
10%  per  annum.   Proceeds  from  the  additional  borrowings  were  used  for
contributions to surplus of insurance subsidiaries of $2,400,000, redemption of
Class S Preferred Stock of approximately  $1,840,000  (SEE  NOTE  7), and other
general  corporate  purposes.   The  Notes are convertible at any time  at  the
option of the noteholders into SMC Common  Stock  at  the  rate  of  $5.747 per
share.   The  Notes  may  be  prepaid in whole or in part at the option of  SMC
commencing on July 1, 2000 at redemption  prices equal to 105% of the principal
amount (plus accrued interest) and declining  to  102%  of the principal amount
plus accrued interest.  The Notes may be prepaid prior to  July  1,  2000  at a
redemption  price equal to 101% of the principal amount (plus accrued interest)
under  certain  limited  circumstances.   The  Notes  are  subject  to  certain
restrictions and covenants substantially similar to those in the Amended Credit
Agreement.

      Standard  Management  International  has  an  unused  line  of  credit of
$1,615,000,  with no borrowings in connection with this line of credit in  1997
or 1996.

      Interest  expense  on  debt  during  1997,  1996 and 1995 was $2,310,000,
$773,000  and $116,000, respectively. Cash paid for  interest  was  $1,464,000,
$356,000 and $100,000 in 1997, 1996 and 1995, respectively.


6.    INCOME TAXES

      The components  of the federal income tax expense (credit), applicable to
pre-tax income before extraordinary gains, were as follows (in thousands):

<TABLE>
<CAPTION>
                                                                               Year Ended December 31,
<S>                                                  <C>                         <C>                         <C>
                                                     1997                        1996                        1995
Current taxes (credit)                               $(570)                      $(888)                      $(110)
Deferred taxes                                       1,187                       158                         353
                                                     $617                        $(730)                      $243
</TABLE>


   The effective tax rate  on pre-tax income before extraordinary gain is lower
than the statutory corporate federal income tax rate as follows (in thousands):
<TABLE>
<CAPTION>
                                                                                Year Ended December 31,
<S>                                                        <C>                      <C>                      <C>
                                                           1997                     1996                     1995
Federal income tax expense at statutory rates (34%)        $1,109                   $1,202                   $529
Small insurance company deduction                          --                       --                       (128)
Nonrecognition of losses in SMC consolidated return and in
foreign                                                    314                      543                      372
   subsidiaries
Amortization of excess of net assets acquired over         (472)                    (472)                    (472)
acquisition cost
Tax benefit from disposal of subsidiary                    --                       (1,420)                  --
Tax benefits from capital loss carryforwards not           (200)                    --                       --
previously recognized
Release of reserve for tax adjustments                     (100)                    (325)                    --
Other items, net                                           (34)                     (258)                    (58)
   Federal income tax expense (credit)                     $617                     $(730)                   $243
Effective tax rate                                         19%                      (21)%                    16%
</TABLE>
<PAGE>
6. INCOME TAXES (CONTINUED)


   The Company recovered $1,313,000,  $130,000  and  $280,000 in federal income
taxes  in 1997, 1996 and 1995, respectively and paid federal  income  taxes  of
$200,000 and $900,000 in 1997 and 1996, respectively.

   Deferred  income  taxes reflect the net tax effects of temporary differences
between the carrying amounts  of assets and liabilities for financial reporting
purposes and the amounts used for  tax  return  purposes. Significant temporary
differences included in the Company's deferred tax  assets (liabilities) are as
follows (in thousands):

<TABLE>
<CAPTION>
                                                                                          December 31,
<S>                                                                  <C>                                  <C>
                                                                     1997                                 1996
Deferred income tax assets:
      Unrealized loss on securities available for sale               $     --                             $355
     Future policy benefits                                          9,368                                8,267
     Capital and net operating loss carryforwards                    6,123                                7,719
     Other-net                                                       1,126                                1,385
         Gross deferred tax assets                                   16,617                               17,726
     Valuation allowance for deferred tax assets                     (6,962)                              (8,750)
         Deferred income tax assets, net of valuation allowance      9,655                                8,976
Deferred income tax liabilities:
     Unrealized gain on securities available for sale                (1,820)                                             --
     Present value of future profits                                 (6,983)                              (8,093)
     Deferred policy acquisition costs                               (5,340)                              (4,089)
         Total deferred income tax liabilities                       (14,143)                             (12,182)
     Net deferred income tax liabilities                             $(4,488)                             $(3,206)
</TABLE>


   The Company is required to establish a "valuation allowance" for any portion
of  its  deferred tax assets which are unlikely to be realized.  The  valuation
allowance for deferred tax assets includes $1,560,000 at December 31, 1997 with
respect to  corporate  income  tax  loss  carryforwards  of Standard Management
International which, if recognized in the future, will result in an addition to
negative  goodwill  and be amortized into income over its remaining  life.  The
valuation allowance for deferred tax assets includes $1,770,000 at December 31,
1997 with respect to deferred tax assets at the date of acquisition and net tax
operating loss carryforwards  of  Dixie National Life and Shelby Life which, if
recognized  in the future, will result  in  a  reduction  to  goodwill  and  be
amortized into income over its remaining life by reducing goodwill amortization
expense.

   As  of  December  31,  1997,  SMC  and  its  noninsurance  subsidiaries  had
consolidated  net  operating loss carryforwards of approximately $9,320,000 for
tax return purposes  which  expire from 2005 through 2012.  These carryforwards
will only be available to reduce  the  taxable  income of SMC.  At December 31,
1997, the Standard Life consolidated return had tax  return  net operating loss
carryforwards of approximately $4,100,000 which expire in 2010  and 2012. These
carryforwards  will  only  be  available  to reduce the taxable income  of  the
Standard  Life  consolidated  return.   At  December  31,  1997,  Premier  Life
(Luxembourg)  had  accumulated  corporate  income  tax  loss  carryforwards  of
approximately $3,960,000, all of which may be carried forward indefinitely.

   The Internal Revenue Service has completed  its  examination  of the Company
for years through 1993 in 1996. All adjustments to taxable income determined by
completed examinations, which were not material, have reduced the net operating
loss  carryforwards.  Upon  completion  of  the examination, a tax reserve  for
adjustments of $325,000 was released and recorded  in income in 1996.  In 1997,
the Internal Revenue Service completed its examination of Standard Life through
1995.  All adjustments including a tax benefit from  previously expired capital
loss carryforwards were settled during 1997 resulting  in  a net tax benefit of
approximately  $200,000 during 1997 and upon completion of the  examination,  a
tax reserve for adjustments of $100,000 was released into income in 1997.


7. SHAREHOLDERS' EQUITY

REDEEMABLE PREFERRED STOCK

   Shareholders  have  authorized  1,000,000  shares  of Preferred Stock. Other
terms, including preferences, voting and conversion rights,  may be established
by the Board of Directors. In March 1995, 300,000 of these shares designated as
Class  S Preferred Stock, $10.00 per share par value, were issued  February  8,
1996.  In  February  1996,  SMC instituted a program to repurchase from time to
time up to 300,000 shares of  its Class S Preferred Stock in the open market or
privately negotiated
7. SHAREHOLDERS' EQUITY (CONTINUED)


transactions.  Through December  31,  1996,  SMC  had  repurchased  and retired
140,111 shares of its Class S Preferred Stock on the open market at a  cost  of
$949,000.   These  repurchases resulted in an extraordinary gain of $502,000 in
1996.  Effective as  of  August  1,  1997,  SMC  redeemed all of the issued and
outstanding  Class  S  Preferred  Stock  at an aggregate  redemption  value  of
$1,840,000 ($10.00 per share plus accumulated and unpaid dividends).

COMMON STOCK

   The Company has a stock repurchase program  and repurchases its Common Stock
from time to time.  The Company repurchased 154,903,  431,026 and 83,600 shares
of Common Stock for $1,079,000, $2,126,000 and $400,000 in 1997, 1996 and 1995,
respectively. At December 31, 1997, the Company is authorized  to  purchase  an
additional 365,644 shares under this program.

   The following table represents outstanding warrants to purchase Common Stock
as of December 31, 1997:

                                               Exercise       Warrants
         ISSUE DATE          EXPIRATION DATE      PRICE     OUTSTANDING

         June 1989           December 1999   $3.5216        236,858
         July 1992           June 1998        3.5296        175,800
         January 1994        January 1998     7.8571         42,000
         September 1995      September 1998   5.2381          4,200
         November 1995       November 2002    4.5238         31,500
         July 1996           July 2003        4.3750         30,000
         August 1996         August 1998      4.3125        100,000
         September 1996      September 1998   5.0000         25,000
         September 1996      September 1999   5.5000         17,000
         July 1997           July 2000        5.7500         75,000
         September 1997      September 2000   7.5000         15,000
                                                            752,358

UNREALIZED GAIN (LOSS) ON SECURITIES

   The  components  of  the  balance  sheet  caption "Unrealized gain (loss) on
securities  available  for  sale" in shareholders'  equity  are  summarized  as
follows (in thousands):

<TABLE>
<CAPTION>
                                                                                          December 31,
<S>                                                                  <C>                                  <C>
                                                                     1997                                 1996
Fair value of securities available for sale                          $372,628                             $347,372
Amortized cost of securities available for sale                      367,427                              349,209
     Gross unrealized gain (loss) on securities available for sale   5,201                                (1,837)
Adjustments for:
     Deferred policy acquisition costs                               (1,727)                              696
     Present value of future profits                                 (209)                                20
     Deferred federal income tax recoverable (liability)             (1,094)                              375
         Net unrealized gain (loss) on securities available for sale $2,171                                     $      (746)
</TABLE>


8.    STOCK OPTION PLAN

      SMC has a non-qualified  Stock  Option  Plan  (the  "Plan")  under  which
2,500,000 (increased by 1,000,000 shares effective October 29, 1997) shares  of
Common  Stock  are  reserved  for  grants  of  stock  options  to employees and
directors. The purchase price per share specified in any Plan option must be at
least equal to the fair market value of common stock at the grant date. Options
generally  become  exercisable  over  a  three-year period and have a  term  of
10 years. The Plan is administered by the  Board  of  Directors and officers of
SMC. The terms of the options, including the number of  shares and the exercise
price, are subject to the sole discretion of the Board of  Directors.   A total
of 562,988 shares are available for future issuance for the Plan as of December
31, 1997.

<PAGE>
8.    STOCK OPTION PLAN (CONTINUED)


      SFAS No. 123 entitled "Accounting for Stock-Based Compensation" issued in
October  1995,  was  adopted  by  the  Company  as  of  December  31, 1996. The
provisions of SFAS No. 123 allow companies to either expense the estimated fair
value  of stock options or to continue their current practice but disclose  the
pro forma  effects  on  net income and earnings per share had the fair value of
the options been expensed.  The Company has elected to continue its practice of
recognizing compensation expense  for  its Plan using the intrinsic value based
method of accounting and to provide the  required  pro  forma information.  Had
compensation cost for the Plan been determined based on the  fair  value at the
grant  date  for awards under the Plan consistent with the provisions  of  SFAS
No. 123, the Company's  pro  forma  net income and pro forma earnings per share
would have been the following (in thousands):

<TABLE>
<CAPTION>
                                                           Year Ended December 31,
<S>                                            <C>                      <C>                      <C>
                                                1997                      1996                     1995
Net income                                     $1,945                   $3,847                    $685
Earnings per share                                 .37                      .75                     .13
Earnings per share, assuming                       .35                      .71                     .13
dilution
</TABLE>

      The fair value of each option grant  is  estimated  on  the date of grant
using   the   Black-Scholes   option-valuation   model   with   the   following
weighted-average assumptions :

<TABLE>
<CAPTION>
                                     1997                      1996                     1995
<S>                                  <C>               <C>     <C>              <C>     <C>
Risk-free interest rates                   5.7%                      5.9%                    6.6%
Volatility factors                          .37                       .49                     .39
Weighted average expected life            7 years                   7 years                 7 years
</TABLE>


      The  Black-Scholes  option  valuation  model  was  developed  for  use in
estimating  the fair value of traded options which have no vesting restrictions
and are fully  transferrable.  In addition, option valuation models require the
input of highly  subjective  assumptions  including  the  expected  stock price
volatility.   Because the Company's employee stock options have characteristics
significantly different  from  those  of traded options, and because changes in
subjective  assumptions  can materially affect  the  fair  value  estimate,  in
management's opinion, the  existing  models  do  not  provide a reliable single
measure of the fair value of its employee stock options.   Because SFAS No. 123
is  effective  only  for awards granted after January 1, 1995,  the  pro  forma
disclosures provided may  not  be representative of the effects on reported net
income for future years.

      A summary of the Company's  stock option activity and related information
for the years ended December 31, 1997, 1996 and 1995 is as follows:

<TABLE>
<CAPTION>
                               1997              1996              1995
<S>                            <C>               <C>               <C>              <C>             <C>             <C>
                                                  Weighted-                          Weighted-                      Weighted-
                                                   Average                            Average                        Average
                                                  Exercise                           Exercise                       Exercise
                                                    Price                              Price                          Price
                                 Shares                              Shares                           Shares
Options outstanding, beginning 1,446,169         $5.98             1,164,720        $6.46           520,294         $7.73
of year
Exercised                      (17,300)          4.52              (1,224)           3.57           (1,667)         3.75
Granted                        685,000           6.29              769,122           6.14           655,008         5.40
Expired or forfeited           (197,049)         4.30              (486,449)         7.56           (8,915)         5.50
Options outstanding, end of    1,916,820         6.08              1,446,169         5.98           1,164,720       6.46
year
Options exercisable, end of    1,467,185                           1,097,028                        762,374
year
Weighted-average fair value of
options                        $3.10                               $3.62                            $2.90
     granted during the year
</TABLE>


<PAGE>
8.    STOCK OPTION PLAN (CONTINUED)

      Information with respect to stock  options  outstanding  at  December 31,
1997 is as follows:

<TABLE>
<CAPTION>
                               Options Outstanding                   Options Exercisable
<S>                <C>             <C>             <C>            <C>           <C>
                                    Weighted-       Weighted-                    Weighted-
  Range of                           Average         Average                      Average
  Exercise           Number         Remaining       Exercise        Number       Exercise
   Prices          Outstanding     Contractual        Price       Exercisable      Price
                                      Life
                                     (years)
      $3-$5        367,650             9 Years      $4.37          231,350       $4.31
      $5-$7        1,036,949           9 Years      5.98           723,614       5.76
      $7-$9        492,533             5 Years      7.41           492,533       7.41
     $9-$11        19,688              6 Years      9.40           19,688        9.40
                   1,916,820                                       1,467,185
</TABLE>

9.    REINSURANCE

      The  Company's  insurance  subsidiaries  have  entered  into  reinsurance
agreements  with  non-affiliated  companies to limit the net loss arising  from
large risks, maintain their exposure  to loss within capital resources, provide
additional capacity for future growth,  and  effect  sharing arrangements.  The
maximum amount of life insurance retained on any one life  ranges  from $30,000
to $150,000.  Amounts of standard risk in excess of that limit are reinsured.

      Reinsurance premiums ceded to other insurers were $4,821,000,  $2,152,000
and  $4,312,000  in  1997, 1996 and 1995, respectively.  Reinsurance ceded  has
reduced benefits and claims  incurred  by $5,383,000, $6,201,000 and $1,369,000
in 1997, 1996 and 1995, respectively.  A  contingent  liability  exists  to the
extent  any  of  the  reinsuring companies are unable to meet their obligations
under the reinsurance agreements.   To  minimize exposure to significant losses
from reinsurance insolvencies, the Company evaluates the financial condition of
its reinsurers and monitors concentrations  of credit risk arising from similar
geographic regions, activities, or economic characteristics  of the reinsurers.
Based  on  its  periodic reviews of these companies, the Company  believes  the
assuming companies  are  able  to  honor  all contractual commitments under the
reinsurance agreements.

      The Company's largest annuity reinsurer  at December 31, 1997 represented
$32,194,000, or 52.3% of total reinsurance recoverable,  $8,707,000  of premium
deposits ceded in 1997 and is rated "A" (Excellent) by A.M. Best.  From January
1,  1995  to  August  31,  1995,  approximately  70% of Standard Life's annuity
business pursuant to the terms of the agreement produced  after  December   31,
1994  was  ceded.   Standard Life decreased the quota-share portion of business
ceded pursuant to this  agreement  to  50%  at  September  1, 1995, and further
reduced it to 25% effective April 1, 1996.  This agreement limits dividends and
other  transfers  by  Standard Life to SMC or affiliated companies  in  certain
circumstances.

      All the inforce business of First International effective January 1, 1996
was ceded to GIAC through a coinsurance indemnity reinsurance agreement.  Under
the terms of the agreement,  approximately $18,841,000 of First International's
reserves and the related assets  were  ceded  to  GIAC  as  of January 1, 1996.
Effective  at  January  1,  1996,  GIAC  entered  into  a  modified coinsurance
indemnity reinsurance agreement with Standard Life relating  to  this business.
Under the terms of the agreement, approximately $18,841,000 of Standard  Life's
reserves  were  assumed  from  GIAC as of January 1, 1996.  In addition, at the
date of the sale of First International to GIAC, Standard Life ceded a block of
business with policy reserves of $12,514,000 and related assets to GIAC.

      In June 1988, Standard Life  ceded a block of business to National Mutual
Life Insurance Company ("National Mutual").   Effective  May 31, 1996, Standard
Life  terminated by recapture the reinsurance agreement with  National  Mutual.
As a result  of  this  recapture,  Standard  Life  received premium income, and
corresponding increase in reserves, of $4,234,000 and  agreed  to  pay National
Mutual a net recapture fee of $825,000.


10.   RELATED PARTY TRANSACTIONS

      SMC  is  a  guarantor  on a $70,000 loan to a director and officer.   The
guaranty will be effective until  the  earlier  of  repayment  of  the  loan or
June 25, 1999.

      On  October  28,  1997,  SMC made an interest-free loan to an officer and
director of SMC, in the amount of  $778,000, representing a new loan in the sum
of $438,000 and consolidation of an  existing  loan.   The principal balance of
the loan was $778,000 and $338,000 at December 31, 1997 and 1996, respectively.
Repayment  is  due  within  10 days of the officer's voluntary  termination  or
resignation as an officer of  SMC.   In  the  event  of  a  termination  of the
officer's employment with SMC following a change in control, the loan is deemed
to be forgiven.
10.   RELATED PARTY TRANSACTIONS (CONTINUED)

      SMC  entered  into  a  covenant  not  to  compete agreement with a former
officer and director in February 1997, effective  July  1,  1996,  the date his
employment agreement terminated. In accordance with the covenant not to compete
agreement, the officer and director received payments of $275,000 in  1997, and
will receive $125,000 in 1998 and $100,000 in 1999.


11.   COMMITMENTS AND CONTINGENCIES

LEASE COMMITMENTS

      The Company rents office and storage space under noncancellable operating
leases.  The  Company  incurred  rent expense for operating leases of $932,000,
$1,037,000 and $1,092,000 in 1997, 1996 and 1995, respectively. Pursuant to the
terms of a lease agreement effective  June 1, 1991, Standard Life has agreed to
lease office space for a ten year period.  After  the  initial  ten  year lease
period,  Standard  Life may continue to lease the premises on a month to  month
basis at a rental of 125% of the prevailing market rate for the leased premises
in effect at that time.

      In April 1995,  SMC sold its equipment and leased it back under a capital
lease. SMC has the option  to renew or purchase the equipment at the end of the
lease  term  in April 1998. The  cost  of  the  equipment  was  $1,396,000  and
accumulated depreciation  of  $1,279,000  and $814,000 at December 31, 1997 and
1996, respectively.

      Future required minimum rental payments,  by  year  and in the aggregate,
under  noncancellable capital leases and operating leases as  of  December  31,
1997, are as follows (in thousands):

                                                         Capital   Operating
                                                         LEASES     LEASES

            1998                                          $144   $   779
            1999                                            --       790
            2000                                            --       721
            2001                                            --       366
            2002                                            --       128
            Thereafter                                      --       128
            Total minimum lease payments                   144    $2,912
            Less amounts representing interest               3
            Present  value  of  net minimum lease 
               payments  under capital lease              $141

EMPLOYMENT AGREEMENTS

      Certain officers are employed pursuant to executive employment agreements
that create certain liabilities in  the event of the termination of the covered
executives following a change in control  of  the Company. The commitment under
these agreements is approximately three times their  current  annual  salaries.
Additionally,  following  termination  from  the Company following a change  in
control, each executive is entitled to receive  a lump sum payment equal to all
unexercised  stock options granted multiplied by the  highest  per  share  fair
market value during  the  six  month  period ending on the date of termination.
There were unexercised options outstanding to these executives to buy 1,177,880
shares at December 31, 1997.


12.   LITIGATION

      An officer and director of SMC resigned  effective  as of April 15, 1997.
On June 19, 1997, this former officer commenced an action in the Superior Court
of  Marion County, Indiana, against SMC claiming that his employment  agreement
contained  a  provision  to  the  effect  that,  following a termination of his
employment  with  SMC  under certain circumstances, he  would  be  entitled  to
receive certain benefits.   This  former officer has asserted to SMC that he is
entitled to a lump sum termination payment of $1,654,000 and liquidated damages
not exceeding $3,308,000 by virtue of his voluntarily leaving SMC's employment.
SMC disputes those claims.  SMC filed  its Answer and Counterclaim on September
11, 1997.  SMC's investigation since the  action was filed revealed a basis for
the  termination of employment of the former  officer  for  cause  relative  to
after-acquired  evidence.   On  October 14, 1997, the Board of Directors of SMC
terminated the former officer for  cause  effective as of March 15, 1997.  Such
termination will also be argued by SMC as a  complete  defense  to  all  claims
asserted  by  the  former  officer.   The ultimate outcome of the action cannot
presently be determined.  Accordingly,  no provision for any liability that may
result  has  been made in the consolidated  financial  statements.   Management
believes that  the  conclusion  of  such  litigation  will  not have a material
adverse effect on SMC's consolidated financial condition.

<PAGE>
12.   LITIGATION (CONTINUED)


      In addition, the Company is involved in various legal proceedings  in the
normal course of business. In most cases, such proceedings involve claims under
insurance  policies  or  other  contracts of the Company. The outcomes of these
legal proceedings are not expected  to  have  a  material adverse effect on the
consolidated financial position, liquidity, or future  results of operations of
the Company based on the Company's current understanding  of the relevant facts
and law.


13.   STATUTORY ACCOUNTING INFORMATION OF SUBSIDIARIES

      The Company's U.S. life insurance subsidiaries maintain  their records in
conformity with statutory accounting practices prescribed or permitted by state
insurance  regulatory  authorities.  Statutory accounting practices  differ  in
certain respects from GAAP. In consolidation,  adjustments  have  been  made to
conform the Company's domestic subsidiaries' accounts with GAAP.

      The Company's U.S. life insurance subsidiaries had consolidated statutory
capital  and  surplus  of  $25,923,000 and $22,970,000 at December 31, 1997 and
1996, respectively, after appropriate  eliminations  of  intercompany  accounts
among  such subsidiaries. Consolidated net income (loss) of the Company's  life
insurance  subsidiaries on a statutory basis, after appropriate eliminations of
intercompany  accounts  among such subsidiaries, was $1,776,000, $3,291,000 and
$(1,339,000)  for  the  years   ended   December   31,  1997,  1996  and  1995,
respectively. Minimum statutory capital and surplus  required  by  the  Indiana
Insurance Code was $450,000 as of December 31, 1997.

      "Prescribed"   statutory   accounting  practices  include  a  variety  of
publications of the National Association  of  Insurance Commissioners ("NAIC"),
as  well  as  state  laws,  regulations,  and  general   administrative  rules.
"Permitted"  statutory accounting practices encompass all accounting  practices
that are not prescribed;  such  practices  may  differ from state to state, may
differ from company to company within a state, and  may  change  in the future.
The  NAIC  currently  is  in  the  process  of  codifying  statutory accounting
practices,  the result of which is expected to constitute the  only  source  of
"prescribed"  statutory  accounting practices. Accordingly, that project, which
is expected to be completed  in  1998,  will  likely  change,  to  some extent,
prescribed  statutory  accounting practices, and may result in changes  to  the
accounting practices that  insurance enterprises use to prepare their statutory
financial statements.

      Policy reserves for Dixie  National  Life's  fixed premium universal life
policies  were  calculated  according to the Commissioners'  Reserve  Valuation
Method  ("CRVM")  for  traditional  whole  life  policies.  This  differs  from
prescribed statutory accounting  practices.  Effective  October  2, 1995, Dixie
National Life received permission from the Mississippi Insurance Department  to
strengthen  the  reserves  for  these policies by using the CRVM methodology as
modified by the Universal Life Model  Regulation.  This  reserve  strengthening
will   be  recorded  quarterly  through  September  30,  1998.  This  permitted
accounting  practice  increased statutory surplus by $451,000 and $1,053,000 as
of December 31, 1997 and 1996, respectively.

      From the funds borrowed  by  SMC pursuant to the Amended Credit Agreement
and the subordinated convertible debt  agreement,  $13,000,000  was  loaned  to
Standard  Life  pursuant  to an Unsecured Surplus Debenture Agreement ("Surplus
Debenture") which requires Standard Life to make quarterly interest payments to
SMC at a variable corporate  base  rate plus 2% per annum, and annual principal
payments of $1,000,000 per year beginning  in  2007  and concluding in 2019. As
required by state regulatory authorities, the balance  of the surplus debenture
at  December  31, 1997 of $13,000,000 is classified as a part  of  capital  and
surplus of Standard  Life.  The  interest and principal payments are subject to
quarterly  approval by the Indiana  Department  of  Insurance,  depending  upon
satisfaction  of  certain financial tests relating to levels of Standard Life's
capital and surplus  and  general  approval  of the Commissioner of the Indiana
Department of Insurance.

      SMC's ability to pay operating expenses and meet debt service obligations
is  partially  dependent upon the amount of dividends  received  from  Standard
Life. Standard Life's  ability  to  pay  cash  dividends  to  SMC  is, in turn,
restricted   by  law  or  subject  to  approval  by  the  insurance  regulatory
authorities of  Indiana.  Dividends are permitted based on, among other things,
the level of preceding year  statutory  surplus  and  net  income.  In 1997 and
1996, Standard Life paid dividends of $1,600,000 and $1,000,000,  respectively,
to  SMC.   In  1995,  Standard  Life  paid  no  dividends to SMC.  During 1998,
Standard  Life  can  pay dividends of $2,592,000 without  regulatory  approval;
Standard Life must notify  the  Indiana regulatory authorities of the intent to
pay dividends at least thirty days prior to payment.

      State insurance regulatory  authorities impose minimum risk-based capital
requirements on insurance enterprises  that  were  developed  by  the NAIC. The
formulas  for  determining  the  amount  of  risk-based capital ("RBC") specify
various weighting factors that are applied to  financial  balances  or  various
levels  of  activity  based on the perceived degree of investment and insurance
risks. Regulatory compliance  is  determined  by  a  ratio (the "Ratio") of the
enterprise's regulatory total adjusted capital, as defined  by the NAIC, to its
authorized  control  level  RBC,  as  defined  by  the NAIC. Enterprises  below
specific trigger points or ratios are classified within certain levels, each of
which  requires specified corrective action. Each of  the  Company's  insurance
subsidiaries has a Ratio that is at least 400% of the minimum RBC requirements;
accordingly, the subsidiaries meet the RBC requirements.

<PAGE>
13.   STATUTORY ACCOUNTING INFORMATION OF SUBSIDIARIES (CONTINUED)


      The  statutory  capital  and  surplus  for  Premier Life (Luxembourg) was
$7,288,000 and $8,243,000 at fiscal years ended 1997  and  1996,  respectively,
and   minimum  capital  and  surplus  under  local  insurance  regulations  was
$2,915,000  and  $3,295,000  at fiscal years ended 1997 and 1996, respectively.
The statutory capital and surplus for Premier Life (Bermuda) was $1,357,000 and
$1,307,000 at fiscal years ended  1997  and  1996,  respectively,  and  minimum
capital  and  surplus  under local insurance regulations was $250,000 at fiscal
years ended 1997 and 1996.  Standard  Management  International  dividends  are
limited  to  its  accumulated  earnings  without  regulatory approval. Standard
Management International and Premier Life (Luxembourg)  were  not  permitted to
pay dividends under Luxembourg law in 1997 and 1996 due to accumulated losses.


14.   OPERATIONS BY GEOGRAPHIC AREA

      The Company operates exclusively in one business segment -- the  sale and
administration  of  life  insurance  business  (principally annuities and other
financial products).

      The revenues, pre-tax income and assets by  geographic  segment  for 1997
through 1995 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                             Year Ended December 31,
<S>                                                <C>                         <C>                         <C>
                                                   1997                        1996                        1995
Revenues:
     United States                                 $42,651                     $36,524                     $26,851
     International                                 4,218                       3,783                       3,387
         Total                                     $46,869                     $40,307                     $30,238
Income before federal income taxes, extraordinary  Year Ended
gain and                                           December 31,
     preferred stock dividends:
     United States                                 $1,541                      $2,313                      $1,224
     International                                 1,721                       1,222                       332
         Total                                     $3,262                      $3,535                      $1,556
                                                                                 At December 31,
                                                   1997                        1996                        1995
Assets:
     United States                                 $508,476                    $486,576                    $343,040
     International                                 160,516                     141,837                     136,558
         Total                                     $668,992                    $628,413                    $479,598
</TABLE>

      The  states in the U.S. with the largest share of U.S. premiums collected
in 1997 were  Indiana  (21%),  California (11%), Ohio (10%), and Florida (10%).
No other state accounted for more than 5% of total collected premiums.


15.   FAIR VALUE OF FINANCIAL INSTRUMENTS

      The following discussion outlines the methods and assumptions used by the
Company in estimating its fair value  disclosures  for its financial instrument
assets and liabilities.  Because fair values for all  balance  sheet  items are
not required to be disclosed pursuant to SFAS No. 107, "Disclosures about  Fair
Values  of  Financial  Instruments", the aggregate fair value amounts presented
herein do not necessarily  represent  the  underlying  value  of  the  Company;
likewise,  care should be exercised in deriving conclusions about the Company's
business or  financial  condition based on the fair value information presented
herein.

      FIXED MATURITY SECURITIES:  Fair values for fixed maturity securities are
based on quoted market prices  from  broker-dealers, where available. For fixed
maturity securities not actively traded, fair values are estimated using values
obtained  from  independent  pricing services,  or,  in  the  case  of  private
placements, are estimated by discounting  the  expected future cash flows using
current market rates applicable to the coupon rate, credit, and maturity of the
investments.

      EQUITY SECURITIES:  The fair values for equity  securities  are  based on
the quoted market prices.

<PAGE>
15.   FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)


      MORTGAGE  LOANS AND POLICY LOANS:  The estimated fair values for mortgage
loans and policy  loans  are  estimated using discounted cash flow analyses and
interest rates currently being  offered  for  similar  loans  to borrowers with
similar credit ratings.

      ASSETS  AND LIABILITIES HELD IN SEPARATE ACCOUNTS:  Fair values  for  the
assets held in  separate  accounts  are  determined  from  broker-dealer market
makers, or valuations supplied by internationally recognized statistical rating
organizations.   The  separate  account  liability  represents  the   Company's
obligations to policyholders and approximates fair value.

      INSURANCE LIABILITIES  FOR  INVESTMENT  CONTRACTS:   Fair  values for the
Company's  liabilities under investment-type insurance contracts are  estimated
using discounted  cash  flow  calculations,  based  on interest rates currently
being  offered  for  similar  contracts with maturities consistent  with  those
remaining contracts being valued.  The  estimated fair value of the liabilities
for investment contracts was approximately  equal  to  its  carrying  value  at
December  31,  1997 and 1996, as credited rates on the vast majority of account
balances approximate  current  rates  paid  on  similar investments and because
these rates are generally not guaranteed beyond one year.

      INSURANCE   LIABILITIES   FOR  NON-INVESTMENT  CONTRACTS:    Fair   value
disclosures  for the Company's reserves  for  insurance  contracts  other  than
investment-type  contracts are not required and have not been determined by the
Company. However,  the  Company  closely  monitors  the  level of its insurance
liabilities  and the fair value of reserves under all insurance  contracts  are
taken into consideration  in  the Company's overall management of interest rate
risk.

      NOTES PAYABLE:  The Company  believes the fair value of its variable rate
long-term debt was equal to its carrying  value  at December 31, 1997 and 1996.
The  Company  negotiated  the terms of its Amended Credit  Agreement  with  its
lenders  in November 1996. Those  negotiations  were  based  on  the  financial
condition  of  the  Company  and  market conditions at that time. The financial
condition of the Company has not changed  significantly  since the negotiations
and although market conditions have changed, the Company pays  a  variable rate
of  interest  on the debt which reflects the change in market conditions.   The
fair value of the  subordinated  convertible  debt  is  based  on quoted market
prices for the amount of shares convertible at December 31, 1997.

      The  carrying  amount  for  all  other financial instruments approximates
their fair values.

      The  fair value of the Company's financial  instruments  is  shown  below
using a summarized  version of the Company's assets and liabilities at December
31, 1997 and 1996 (in  thousands).  Refer  to Note 3 for additional information
relating to the fair value for investments.

<TABLE>
<CAPTION>
                                                                              December 31,
<S>                                           <C>                      <C>                    <C>                    <C>
                                                   1997                    1996
                                               Fair                  Carrying                 Fair                 Carrying
                                               Value                  Amount                  Value                 Amount
Assets:
     Investments:
         Securities available for sale:
           Fixed maturity securities           $372,576                $372,576               $347,310               $347,310
           Equity securities                         52                      52                     62                     62
         Mortgage loans on real estate              377                     375                  3,041                  3,035
         Policy loans                             8,978                   9,495                  7,767                  9,903
         Other invested assets                      779                     779                    888                    865
         Short-term investments                  13,342                  13,342                  8,417                  8,417
         Assets held in separate                148,064                 148,064                128,546                128,546
         accounts
Liabilities:
     Insurance liabilities for                  350,607                 350,607                333,633                333,633
     investment contracts
     Obligations under capital lease                141                     141                    637                    637
     Notes payable                               27,419                  26,000                 20,000                 20,000
     Liabilities related to separate            148,064                 148,064                128,546                128,546
     accounts
</TABLE>


<PAGE>
16.   EARNINGS PER SHARE

      A reconciliation of the numerator and  denominator  of  the  earnings per
share  computation  is  as  follows  (dollars  in  thousands,  except per share
amounts):

<TABLE>
<CAPTION>
                                                           1997                     1996                     1995
<S>                                                        <C>                      <C>                      <C>
Numerator:
   Income  before  extraordinary  gain and preferred stock $2,645                   $4,265                   $1,313
dividends
 Extraordinary  gain  on  early  redemption  of redeemable --                       502                      --
 preferred  stock
 Preferred          stock          dividends               (97)                     (208)                    --
 Numerator for basic earnings per share -
Income available to common shareholders                    2,548                    4,559                    1,313
Effect of dilutive securities:
Preferred           stock          dividends               97                       208                      --
14% subordinated convertible debt                          --                       82                       --
10% subordinated convertible debt                          --                       --                       --
                                                           97                       290                      1,313
 Numerator for diluted earnings per share -
Income available to common sharehodlers after assumed      $2,645                   $4,849                   $1,313
conversions
Denominator:
Denominator  for  basic  earnings  per  share - weighted - 4,948,302                4,856,316                5,244,495
average shares
Effect of dilutive securities:
 Stock options                                             182,615                  24,311                   5,240
 Stock                              warrants               230,285                  108,062                  96,202
 Convertible         preferred         stock               230,015                  393,701                  --
 14%     subordinated    convertible    debt               --                       166,667                  --
 10%    subordinated     convertible    debt               --                       --                       --
Dilutive potential common shares                           642,915                  692,741                  101,442
Denominator  for  diluted earnings per  share  -  adjusted
weighted -average                                          5,591,217                5,549,057                5,345,937
 shares      and     assumed     conversions
Basic       earnings        per        share                $         .52            $         .94            $         .25
Diluted       earnings       per       share                $         .47           $          .87            $         .25
</TABLE>

      The Notes convertible in 1997 (SEE  NOTE  5)  were  not  included  in the
computation  of diluted earnings per share in 1997 because the effect would  be
antidilutive.


17.   PENDING ACQUISITION

      On December  9,  1997,  SMC  and  Savers  Life Insurance Company ("Savers
Life") entered into an Amended and Restated Agreement  and  Plan of Merger (the
"Merger Agreement") with Savers Life surviving as a wholly-owned  subsidiary of
SMC.  Subject to the terms and conditions of the Merger Agreement,  each  share
of Savers Life Common Stock outstanding immediately prior to the Effective Time
(as  defined  in the Merger Agreement) of the Merger will be converted into 1.2
shares of SMC Common Stock plus $1.50.  Each holder of Savers Life Common Stock
may elect to receive the $1.50 per share portion of the merger consideration in
the form of additional  shares  of  SMC  Common Stock.  Assuming each holder of
Savers Life Common Stock elects to receive  $1.50  per share cash consideration
in lieu of electing to receive shares of SMC Common Stock and a value per share
of  $7.00  per  share,  SMC  will  issue 2.1 million shares  with  a  value  of
approximately $15 million to acquire  the  Savers  Life  Common Stock.  SMC has
received a commitment to increase the Amended Credit Agreement  to  $20,000,000
to  finance  the  acquisition  of Savers Life.  The acquisition is expected  to
close in March 1998.

      Savers  Life  underwrites,  markets   and   distributes  annuities,  life
insurance,  and  Medicare supplement health insurance  through  a  sales  force
consisting of 4,000  independent  brokers  and  is licensed to sell products in
North Carolina, South Carolina, Virginia and Florida.   Savers  Life  had total
assets of $72,186,000 at December 31, 1997 and revenues of $43,047,000  for the
year ended December 31, 1997.


<PAGE>
18.   QUARTERLY  FINANCIAL  DATA   (UNAUDITED)  (IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)


      Earnings  per common and common equivalent share  for  each  quarter  are
computed independently  of  earnings  per  share  for  the  year.  Due  to  the
transactions  affecting  the  weighted  average number of shares outstanding in
each quarter and due to the uneven distribution  of  earnings  during the year,
the  sum  of  the  quarterly earnings per share may not equal the earnings  per
share for the year.  The  1996  and  first  three quarters of 1997 earnings per
share amounts have been restated to comply with SFAS No. 128.

<TABLE>
<CAPTION>
                                                                              1997 Quarters
<S>                                             <C>                     <C>                    <C>                    <C>
                                               First                  Second                  Third                 Fourth
Total revenues                                  $12,019                 $11,292                $11,599                $11,959
Components of net income:
     Operating income                              $528                    $661                   $537                   $658
     Net realized investment gains                  115                      21                     53                     72
     Net income                                    $643                    $682                   $590                   $730
Net income per common share                      $  .13                 $   .14                $   .12                $   .15
Net income per common share, assuming
     dilution                                    $  .11                 $   .12                $   .11                $   .13
                                                                              1996 Quarters
                                               First                  Second                  Third                 Fourth
Total revenues                                   $8,856                 $12,665                 $7,969                $10,817
Components of net income:
     Operating income                              $214                  $(187)                   $342                   $804
     Net realized investment gains                  145                     125                    129                    387
     Gain on disposal of subsidiaries             2,306                      --                     --                     --
     Extraordinary gain on early
     redemption of                                  101                     166                    233                      2
         redeemable preferred stock
     Net income                                  $2,766                    $104                   $704                 $1,193
Net income per common share                      $  .55                 $   .02                 $  .15                $   .24
Net income per common share, assuming
     dilution                                    $  .51                 $   .02                 $  .13                $   .21
</TABLE>

      Reporting  the  results  of insurance operations  on  a  quarterly  basis
requires the use of numerous estimates  throughout  the  year, primarily in the
computation of reserves, amortization of deferred policy acquisition  costs and
present  value of future profits,  and the effective rate for income taxes.  It
is the Company's  practice  to review estimates at the end of each quarter and,
if necessary, make appropriate adjustments, with the effect of such adjustments
being reported in current operations.  Only  at year-end is the Company able to
assess the accuracy of its previous quarterly  estimates.  The Company's fourth
quarter results include the effect of the difference between previous estimates
and  actual year-end results. Therefore, the results of an interim  period  may
not be indicative of the results of the entire year.



<PAGE>

         SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                        STANDARD MANAGEMENT CORPORATION
                               (PARENT COMPANY)

                           CONDENSED BALANCE SHEETS
               (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                              December 31,
<S>                                                                                   <C>                            <C>
                                                                                         1997                           1996
                            ASSETS
Investments:
         Investment in subsidiaries                                                   $52,005                        $46,422
          Surplus debenture due from Standard Life                                     13,000                         13,000
         Equity securities available for sale, at fair value  (amortized                    2                             12
   cost: 1997 - $5; 1996 -$8)
         Real estate                                                                      130                            139
         Investment in joint venture                                                       --                            320
         Notes receivable from officers and directors                                     778                            338
         Short-term investments, at cost, which approximates fair value                    79                            124
                                                                                       65,994                         60,355
Cash                                                                                    1,327                            900
Property and equipment, less accumulated depreciation of $1,636 in 1997                   879                          1,087
and $989 in 1996
Note receivable from affiliate                                                          2,858                          2,858
Amounts receivable from subsidiaries                                                    1,212                            638
Other assets                                                                            1,892                            829
            Total assets                                                              $74,162                        $66,667
             LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
   Obligations under capital lease                                                       $141                           $637
   Notes payable                                                                       26,000                         20,000
   Note payable to affiliate                                                            2,858                          2,858
   Amounts due to subsidiaries                                                            397                            473
   Other liabilities                                                                    1,453                          1,023
            Total liabilities                                                          30,849                         24,991
Class S Cumulative Convertible Redeemable Preferred  Stock, par value $10
per share:
   Authorized 300,000 shares; issued and outstanding 159,889 shares in                     --                      1,757
1996
Shareholders' Equity:
   Preferred Stock, no par value:
         Authorized 700,000 shares; none issued and outstanding                            --                             --
   Common Stock, no par value:
         Authorized 20,000,000 shares; issued 5,752,499 shares                         40,646                         40,481
   Treasury stock, at cost, 876,009 shares in 1997 and 728,229 shares in               (4,572)                        (3,528)
1996
   Unrealized gain (loss) on securities available for sale of subsidiaries              2,171                           (746)
   Foreign currency translation adjustment of subsidiaries                               (473)                           691
   Retained earnings                                                                    5,541                          3,021
           Total shareholders' equity                                                  43,313                         39,919
           Total liabilities and shareholders' equity                                 $74,162                        $66,667
</TABLE>

              See accompanying notes to condensed financial statements.


                        STANDARD MANAGEMENT CORPORATION
                               (PARENT COMPANY)

                        CONDENSED STATEMENTS OF INCOME
                            (DOLLARS IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                              Year Ended December 31,
<S>                                                 <C>                          <C>                          <C>
                                                    1997                         1996                         1995
 Revenues:
   Net investment income                            $ --                         $32                          $112
   Interest income from subsidiaries                1,519                        357                          172
   Net realized investment gains                    --                           --                           23
   Loss on disposal of subsidiary                   --                           (156)                        --
   Other income                                     154                          135                          28
   Rental income from subsidiaries                  1,145                        853                          715
   Management fees from subsidiaries                2,100                        1,905                        1,930
         Total revenues                             4,918                        3,126                        2,980
Expenses:
   Other operating expenses                         3,420                        3,470                        2,479
   Interest expense and financing costs             2,367                        799                          110
   Interest expense on note payable to affiliate    162                          161                          172
         Total expenses                             5,949                        4,430                        2,761
Income (loss) before federal income taxes, equity
in earnings
   of consolidated subsidiaries, extraordinary gain (1,031)                      (1,304)                      219
   and preferred stock dividends
Federal income tax expense (credit)                 (76)                         --                           (57)
Income (loss) before equity in earnings of
consolidated
   subsidiaries, extraordinary gain and preferred   (955)                        (1,304)                      276
   stock dividends
Equity in earnings of consolidated subsidiaries     3,600                        5,569                        1,037
Income before extraordinary gain and preferred      2,645                        4,265                        1,313
stock dividends
Extraordinary gain on early redemption of
redeemable                                          --                           502                          --
   preferred stock, net of $-- federal income tax
Net income                                          2,645                        4,767                        1,313
Preferred stock dividends                           97                           208                          --
Earnings available to common shareholders           $2,548                       $4,559                       $1,313
</TABLE>



              See accompanying notes to condensed financial statements.
<PAGE>

                        STANDARD MANAGEMENT CORPORATION
                               (PARENT COMPANY)

                      CONDENSED STATEMENTS OF CASH FLOWS
                            (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                Year Ended December 31,
<S>                                                     <C>                        <C>                        <C>
                                                        1997                       1996                       1995
OPERATING ACTIVITIES
Net income                                              $2,645                     $4,767                     $1,313
Adjustments to reconcile net income to net cash
provided by
operating activities:
   Amortization of deferred debt issuance costs         71                         32                         2
   Depreciation and amortization                        646                        564                        562
   Equity in earnings of subsidiaries                   (3,600)                    (5,569)                    (1,037)
   Accrued interest payable                             435                        320                        --
   Other liabilities                                    79                         192                        480
   Net realized investment gain                         --                         --                         (23)
   Dividend from Standard Life                          1,600                      1,000                      --
   Extraordinary gain                                   --                         (502)                      --
   Other                                                (370)                      165                        (905)
         Net cash provided by operating activities      1,506                      969                        392
FINANCING ACTIVITIES
Issuance of Common Stock, net                           --                         --                         6
Borrowings, net of debt issuance costs of $70 in 1997,
$208 in 1996                                            5,558                      16,792                     2,923
   and $81 in 1995
Repayments on long-term debt and obligations under      (543)                      (491)                      (312)
capital lease
Short-term borrowings, net                              --                         --                         (550)
Redemption of redeemable preferred stock                (1,855)                    (949)                      --
Repurchase of stock warrants                            --                         (600)                      --
Proceeds from common and treasury stock sales           138                        100                        --
Purchase of Common Stock for treasury                   (503)                      (2,126)                    (822)
         Net cash provided by financing activities      2,795                      12,726                     1,245
INVESTING ACTIVITIES
Investments, net                                        (1,035)                    197                        653
Proceeds from sale of property and equipment under      --                         --                         1,396
sales leaseback
Purchase of property and equipment, net                 (439)                      (246)                      (475)
Surplus debenture contributed to Standard Life          --                         (13,000)                   --
Capital contribution to Standard Life                   (2,400)                    --                         (3,000)
Capital contribution to Standard Management             --                         --                         (170)
International
Capital contribution to Standard Advertising, Inc.      --                         --                         (173)
Capital contribution to Standard Reinsurance            --                         --                         (6)
         Net cash used by investing activities          (3,874)                    (13,049)                   (1,775)
Net increase (decrease) in cash                         427                        646                        (138)
Cash at beginning of year                               900                        254                        392
Cash at end of year                                     $1,327                     $900                       $254
</TABLE>

              See accompanying notes to condensed financial statements.
<PAGE>

       SCHEDULE II--CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)

                        STANDARD MANAGEMENT CORPORATION
                               (PARENT COMPANY)

                    NOTES TO CONDENSED FINANCIAL STATEMENTS

                               DECEMBER 31, 1997


1. BASIS OF PRESENTATION

   For  purposes  of  these condensed financial statements, Standard Management
Corporation ("SMC") carries its investments in subsidiaries at cost plus equity
in undistributed earnings of subsidiaries since date of acquisition. Net income
of its subsidiaries is  included  in  income  using  the  equity  method. These
condensed  financial  statements  should  be  read  in  conjunction  with SMC's
consolidated financial statements included elsewhere in this document.


2. DIVIDENDS FROM SUBSIDIARIES

   SMC  received a cash dividend from subsidiaries of $1,600,000 and $1,000,000
in 1997 and  1996,  respectively. There were no cash dividends paid to SMC from
its subsidiaries in 1995.


<PAGE>
                          SCHEDULE IV -- REINSURANCE

                        STANDARD MANAGEMENT CORPORATION

                 YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
                            (DOLLARS IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                                                  Percentage
                                                          Ceded to            Assumed                              of Amount
                                        Gross               Other           from Other                              Assumed
                                       Amount             Companies          Companies         Net Amount           to Net
<S>                                 <C>                 <C>                <C>                <C>                       <C>
YEAR ENDED DECEMBER 31, 1997
Life insurance in force             $2,447,782          $1,269,848         $237               $1,178,171                .02%
Premiums
   Life insurance and annuities     $11,735             $4,821             $--                $6,914
   Accident and health insurance    17                  --                 --                 17
   Supplementary contract and other
   funds                            169                 --                 --                 169
         on deposit
           Total premiums           $11,921             $4,821             $--                $7,100
YEAR ENDED DECEMBER 31, 1996
Life insurance in force             $3,000,763          $1,633,340         $252               $1,367,675                .02%
Premiums
   Life insurance and annuities     $11,862             $2,152             $--                $9,710
   Accident and health insurance    21                  --                 --                 21
   Supplementary contract and other
   funds                            737                 --                 --                 737
         on deposit
           Total premiums           $12,620             $2,152             $--                $10,468
YEAR ENDED DECEMBER 31, 1995
Life insurance in force             $2,316,826          $1,490,812         $282               $826,296                  .03%
Premiums
   Life insurance and annuities     $9,574              $4,312             $--                $5,262
   Accident and health insurance    22                  --                 --                 22
   Supplementary contract and other
   funds                            220                 --                 --                 220
         on deposit
           Total premiums           $9,816              $4,312             $--                $5,504
</TABLE>